Apple denies iTunes slump: mania resumes
By Thomas Ricker 
posted Dec 13th 2006 9:05AM
posted Dec 13th 2006 9:05AM
A day after Forrester's fiscal drubbing of Apple's iTunes (and the state of digital music download services in general) hit the global press, out comes Apple swinging in response. Apple said Forrester's report is "simply incorrect," then put down the gloves and stepped back into their magical pumpkin carriage. Since they won't divulge actual iTunes financials -- Forrester's research relied upon analysis of 2,791 US iTunes debit and credit card purchases between April 2004 and June 2006 -- we may never know the truth. Regardless, iTunes is just part of the overall iPod ecosystem and already, much of yesterday's Wall Street losses have been regained in pre-bell trading. Guess everyone is counting on a holiday upturn in sales and big iPod margins to carry 'em through. Hell, it wouldn't be the first time that product was sold at a loss as part of a larger, razor-and-blade business model now would it?Update: This just in: ComScore Networks released their numbers and guess what? They're saying that revenue from Apple's iTunes store rose 80% and buying transactions rose by 67% in the first three quarters of 2006 compared with the same period in 2005. That, on top of a Piper Jaffray note saying songs sold per week on iTunes in the first 9 months of 2006 had risen by 79% compared with the same period in 2005. In fact, PJ analyst Gene "who's your daddy now" Munster goes to such Forrester riling lengths as to claim that the digital music market will "go through massive growth in the next several years." With Forrester backing off, claiming that their report was misinterpreted by the press, we guess this matter is now closed.
Maybe, just maybe, Jo Public has finally woken up and smelt the DRM coffee?
Actually the inverse business model, Apple is giving away blades to sell razors. The fact that they have been making some positive revenue from iTunes is amazing.
Forrester's sample size seems awful small for the size of the iPod "market."
I think you meaning giving away razors to sell blades :)
Wow, Apple has to be the only company in the world that can deflect any bad news by just saying "it isn't true." I never cease to be amazed by how people then just turn around go "oh, ok" and act like the bad news never existed, because Apple said it didn't.
If you accused me of, say, robbing your house, I can deny it, and not feel any obligation to further refute your claim.
Forrester's methodology appears to be ludicrous. Why would Apple bother to have the discussion with them?
Well, if a report said "Apple kills human babies in order to build iPods" and then Apple denied it, would you think "hmm... Apple just said "That's not true" and everybody believed it. Just because they said it, everybody acts as if the news never existed.
However, it is indeed painful to see that a company like Apple is trusted ,because you remeber that when you were 8, your teacher never believed you didn't cheat at that exam (and you actually didn't)
:P
At closer inspection it seems that it is not sales which fallen by reported 65% but the "growth rate of sales". That's my impression and impression of many posters on macrumors.com
IOW, it's business speech - not for geeks nor mere mortals.
Yes, but it's still significant when you consider that iPod sales have not slowed down anywhere near as much. It's all relative. The fact that all the new iPod owners are not buying from iTunes is very significant. I think (hope) that the DRM backlash is in effect here.
For example, a friend of mine downloaded a mass of music off iTunes. He is planning to get a HDD in car MP3 head unit for xmas and his girlfiend is getting a SatNav which will also play MP3's. When i told him that none of his music from iTunes will play on them he stopped buying from iTunes. I think this scenario is becoming more apparent as more people are starting to buy more than one MP3 capable device.
Yep, kinda like with some "budget cuts", where the budgeted amount actually went up, but not at the previous growth rate.
I seriously doubt that they have finally 'woken' up...what is more likely is that most of the public already has the songs that he/she would want. There isn't a glut of new crap coming out on the site and people, in general, are rarely going to try something new...unless they heard it on the radio the general public will not buy it.
Cue some idiot saying "but you can burn all your songs to CD and then rip them again!".
If I'd bought all my music from iTunes that would be several thousand songs. Good luck with that.
Personally I don't understand why anyone would buy anything in a restrictive format, music or otherwise. Like, I dunno, pod-based coffee machines. You could buy hundreds of refills for one, but if you get a different machine they won't work. Same with buying music that'll only work on iPods. You wan't a Zune now? Shame.
Forrester should be embarrased. They analyzed and reported their findings based on a measley 2700 transactions over a 27 month period. Thats 100 transactions per month, average.
With three items per transaction thats 8100 items total. Compare that sample size to the population size of nearly 1 and a half billion songs sold between April 2004 and Sept 2006(30 months). This means that, at best, the Forrester research represents 0.00054% of the overall iTunes market. And that is before we include TV shows, music videos, and movies.
Using the same data on wikipedia (sourced from Apple Earnings and Press Releases) you can see that the average monthly Music purchases has dropped 30% in Sept 06 from January 06. This may seem daunting, but can be explained by seasonality. Does anyone know the seasonality of CD sales?
A better picture (certainly better than Holiday shopping vs Sept comparison) could be painted by a year over year comparison. Sept 06 vs Sept 05 saw a 21% increase in average monthly music sales. Again, this does not take into account TV shows and Movies.
The drop in iTunes Music Sales has mirrored the drop in iPod sales. Both will reverse this holiday season.
I would believe that Forrester's report is incorrect. I can't see how sales would have fallen 65%. Besides, I've heard it reported several different ways from various news sources, probably none of whom have actually paid the $250 to read the report. Is it down 65% from the same month last year, month on month? I've heard both and don't believe either.
And this was second hand analysis of credit card transactions. Haven't they heard of iTunes gift cards? I even cashed in all my pennies and nickels and got a code to use on iTunes. I know they didn't count that.
It all got Forrester some good press coverage and page hits though didn't it...
Denial is the first step, good job Apple; your a step in the right direction...
But in any case, we all know by the time people do start to "tire" of iTunes/iPOD a brand new piece of hardware or software will pop out of Jobs'pants again.
Sheesh - how many ways can this story get re-spun ?! Now Apple are 'refusing' to say how much they make from downloads ? Did anybody ASK them ? Are they even obliged to reveal that information to all and sundry ? Of course not
Steve jobs said up front, when launching the iTMS that it WASN'T there to make money. It's there as a vehicle to sell more iPods. The only people who'll be weeping if the iTMS fails will be the record companies, and the legitimate users who find this particular DRM scheme easy to live with and like the convenience of instantly available music. Apple will still be laughing all the way to the iPod bank.
There's a heck of a lot of bad feeling aimed towards Apple these days. I'm guessing its due to 'analysts' who couldn't analyse their way out of a paper bag, and failed to buy in to Apple stock before it's value rocketed. Now they'll do anything to bring it crashing down and make a mint selling short.
I don't want to get your pocket protectors in a a tizzy, but really, come on. The vast, vast majority of customers don't care about DRM. The people who shop online for music are instead pretty happy with whatever it is that makes buying music online possible. While the don't-pay-for-anything-istas might get excited about the concept of DRM "failing", 1) it's not, and 2) given that you aren't going to buy most online music anyway, nobody cares what you have to say.
You can always go use perfectly good services like eMusic. In the mean time, so long as the record labels continue to make money under any business model, they will not change their tune. And remember, the online stores take orders from the record labels; if they pick up and go home, nobody really wins, other than apparently the whiny live-in-your-parents'-basement demographic that seems to frequent these boards.
The author of the report is backing away, blaming press sensationalism.
The sky is not falling people. Get a grip.
http://blogs.forrester.com/devicesmedia/2006/12/itunes_sales_ar.html
Does this look like a 65% drop in sales..?
This is a Forrester chart.
http://blogs.forrester.com/.shared/image.html?/photos/uncategorized/itunes_and_ipods_1.jpg
My company is an authorized digital distributor for iTunes and I have to agree with Apple. We have not seen a decline as reported in the news. We distribute for hundreds of artists, and therefore I feel we have enough datapoints to determine a trend, and there definately has not been any decline nearing the 65% margine. Heck, our profits (as well as our artists and labels) are up! :)
Catapult
www.catapultdistribution.com
Apple's publicly traded, if people wanted to know how a division is doing they can grab a financial statement. If they wanted an answer, they'd get it; if they wanted to bitch, they'll bitch.
is it just me or is, "2,791 US iTunes debit and credit card purchases between April 2004 and June 2006" a rediculously small sample of purchases to base this analysis on?
Does Forrester's figures include PayPal transactions or gift card credits? I'm sure many people use PayPal to pay for songs on iTMS (myself included), so I don't think this is completely accurate, as it only shows "credit card transactions."
From this week's SoundScan. considering digital albums sales are up 104% and digital singles are up 66% vs last year and itunes has a 90% market share... there is no way their sales are down.
YTD INDUSTRY FORMATS
* CDs down 38.5MM Units (- 7.3%) vs. LY.
* Digital Albums up 15.2MM Units (+ 104.6%) vs. LY.
* Digital Tracks up 210.1MM Units (+ 66.6%) vs. LY.
I think at worst you're seeing a normalization. There were people like me that at first would hunt for old one hit wonders you loved and I've found most of those. Then you started buying albums that matched you taste.
In the last four month I've bought about a total of $70 in music. It's not for a lack of looking, but what I like what is hot and published right now. I thought the world was going to end the day Paris Hilton got a CD published.
http://www.washingtonpost.com/wp-dyn/content/article/2006/12/13/AR2006121300500.html
So whos right? Regardless I still buy music from iTunes.
Do gift card sales and content quality play a role in Forrester's data? The seasonal pattern looks logical. This argument is a stretch, nevertheless.
DRM-free distribution many suggested here will destroy the digital content market as a whole. The idea wipes out any assigned value to creative contents. How can we have an exchange in a space where everything is worths nearly zero; everything that's not worth zero fails (due to vast pool of credible substitutions).
I understand many of us want to be saints. But majority of general public aren't.
A better solution will be for Apple to license their DRM technology to others.
A tool has existed for years now that strips the apple encoding out and saves your files as mp3s. You can point it at your entire collection, and it will do its thing. The tool was originally made by DVD Jon, and is now wrapped in a GUI and called JHymn. I won't give you a link to it, but it is freely available on the web. So... stop whining about DRM and just free yourselves the DVD Jon way.
JHymn hasn't worked since ITunes 6. However, there are a couple of other ILLEGAL programs to remove the DRM for both Mac and WIndows, and one LEGAL program called DRM Cumpster that uses a CD-RW to copy your iTunes purchased songs to a CD and then import back to your library automatically.
The ipod/itms combo has reached beyond anybody's wildest expectations. Last night they actually had a "made for ipod" segment on one of the cable shopping channels. Grandma's, truck drivers, etc. all calling in as fast as their little fingers could dial. Needless to say they sold out the ipods. The phenom continues unabated with or without this report.
"Apple's publicly traded, if people wanted to know how a division is doing they can grab a financial statement. "
Mikey, there's nothing that requires a company to break out individual divisions in their financial statement and most companies don't.
The article is a bit vague on what Apple's response truly was but if they do choose to make statements about their finances they are legally liable for any inaccuracies so with investors looking to sue at any hint of inaccurate financial statements they should tread lightly.
Lee, that will stir this into a PR nightmare. Apple did dispute the matter adequately through different channels.
A Prime principal in crisis communication - Don't say nothing, but don't say too much, either.
"DRM-free distribution many suggested here will destroy the digital content market as a whole."
Yeah, about as much as home taping killed the record industry, and video killed the radio star.
Seriously- unencrypted easy-to-copy media like CDs has been around for ages, and yet it still sells. Yes, some people will "share" their music online, but they're the same people who would have burned a CD for a friend or taped songs off the radio in eras gone by. The medium has changed a bit, the "problem" has just moved with it.
From the Forrester blog: "The 65% decline in revenue was between January 2006 and June 2006. This decline is statistically significant, but is still based on a sample of 181 iTunes buyers."
Is it just me or does 181 iTunes buyers seems a laughable sample size to be making these kind of predictions on? No wonder Apple were not happy.
I know I am just wasting my breath here, because the wonderful thing about the Internet is that you get to believe whatever you want, regardless of the truth.
However, the whole point of independent market research is to get an unbiased view of the situation. The whole iTunes/iPod market has now been around long enough that research firms can start basing analysis on accepted methods used for other products and media, instead of just taking Apple at their word for how great the product is doing. Almost without fail, every independent report is painting a picture not quite as rosy as the one Apple paints, which is to be expected, because all companies try to put the best spin on their sales figures.
The true sign of any mindless fanboy, is when they decide to start questioning the motives and methodology of respected independent researchers, choosing instead to believe corporate press releases from the company in question. The fact of the matter is that as long as Apple is truthful in their SEC filings about how much money they are making, they could pretty much blatantly lie in their press releases about how many individual sales they are making. It wouldn't be the first time. Movie studios have been understating individual DVD sales for years, in attempts to try and screw the artists out of residuals.
There is no law saying that Apple, or any other company, has to divulge individual sales figures, nor is their any law saying that when they do put out a press release stating figure, that those figures must be true. This is the whole reason market research firms exist! They wouldn't stay in business very long if you could just trust companies to truthfully tell you how well their product was doing.
It doesn't take a genius to realize that iTMS sales spike in January because lotsa people get iTMS gift cards in their xmas stockings.
I encourage all of you to read the truth at
http://www.blackfriarsinc.com/blog/2006/12/looking-at-forresters-side-of-itunes.html
Follow the links there too.
Final word : somebody with a lot of envy on Apple success, tried to use this report to throw a lot of garbage at it. The question remains, how these guys came up with a 65 % decline on iTunes sales, and more interesting, why so many morons believed it ?
"I think you meaning giving away razors to sell blades :)"
More like selling lots of new blades, cheap, to sell many more razors.
There are alternatives to jhymn that work pretty well.
So Engadget - where's the headline story about the fact that Forrester have now retracted their claims - or more correctly, countered the overblown reports based on their research ? Oh - no, sorry. That would require some journalistic credibility...