Why Are Online Music Sales Down?

Apple May Be Holding Back The Music Biz: “According to Nielsen SoundScan, average weekly download sales as of Nov. 27 fell 0.44% vs. the third quarter. Says independent media analyst Richard Greenfield: ‘We’re not seeing the kind of dramatic growth we should given the surge in sales of iPods and other MP3 players.'”

How big is the appetite for paid legal downloads, or more specifically, paid legal downloads from iTunes? BusinessWeek Online is out with an article saying that despite iPod sales being up, online song sales most recently are down. Is the case, as BusinessWeek suggests, that legal downloads may be losing their luster?

Certainly the bloom may be off the rose a bit and as BusinessWeek reminds us, “as has been true since the start, iPod owners mostly fill up their players from their own CD collections or swipe tunes from file-sharing sites.” But there also may be more going on here as well. A few other things to think about.

1. To what extent are free podcasts cannibalizing music sales? Although I’ve never purchased a single music track from Apple, I do know that personally my own mix between listening to podcasts and music has changed over the last year. As more and more compelling free podcasts have been made available, I actually listen to a lot less music on my AudioVox SMT5600 than I used to. Sometimes I’m in a mood to just veg and listen to music but a lot of the time I’m more in a mood to feed my mind. As people generally have a fixed amount of “iPod Time” per week (commuting and exercising mostly) could it be that with more great podcasts out there people are less interested in buying music?

2. Have video downloads cannibalized iTunes music sales over the last quarter? Certainly the type of person who might download a video from Apple’s iTunes to try it out probably has a high likelihood of already being a current iTunes customer. Have the 3 million or so video downloads to date distracted typical iTunes music downloaders while they play around with the novelty and newness of iTunes video downloads?

3. Is sneakernet gaining traction? One unknown out there has always been how many mp3s are being shared from ripped CDs. As the prices on blank media, as well as cheap external storage drives, continues to drop, are more people copying legally ripped tracks from their friends and family? If I visit my family at Thanksgiving and copy 100 gigs from a brother/sister/mother/father/cousin/niece/nephew/aunt/uncle/family friend, am I likely to want to go out and buy more from iTunes? If a certain number of people have abandoned peer to peer because of the irrational fear of a lawsuit, does sneakernet represent a new free and easy way to get music without the fear of a lawsuit? Is there a relationship between the price of media and hard drives dropping and music sales dropping?

4. As BusinessWeek mentions there is now more competition from subscription services.

5. Is there a backlash growing against Apple for it’s continued use of proprietary formats? Although people love the iPod, do (a few) resist buying iTunes tracks because they don’t like the idea that legal music on an iPod MUST come from iTunes and not other sources?

6. Is there a backlash against the RIAA and the recording industry in general for their heavy handed tactics and a general increasing hatred towards them and thus a shifting view culturally on the imperative for paying for music vs. getting it for free?

So why also do people buy iTunes downloads in the first place? There are a few reasons. Convenience. Adequate disposable income. A moral or ethical belief that it is a superior way to consume music than via free peer to peer or sneakernet sources.

As the popularity of the iPod grows, and it becomes cheaper and less and less of an early adopter or upper middle class toy, perhaps the demographics of it’s user base are also changing and the mix of income, alternative sources (aka convenience), and less RIAAthinklike individuals may be having an impact as well.

Of course, in all of this, let’s be frank, really Steve Jobs could care less if music download sales are down or not. He doesn’t make any money on music downloads. Well, he does care to the extent that it affects his ability to negotiate with the music industry going forward — but as far as he and Apple are concerned it doesn’t matter what people are listening to as long as they are listeing to something and as long as it’s on an iPod. This is one reason why you’ve seen Apple so aggressively offering up free podcasts on iTunes and Jobs probably doesn’t lose any sleep about the fact that peer to peer and sneakernet are still alive and well. As BusinessWeek correctly reminds us: “So will Jobs change his tune? Not unless he has to. Apple can barely keep up with demand for iPods, which reap as much as 25% gross margins, vs. minimal profits for each iTunes track. So right now there’s no reason for the company to alter the way it sells music or make its player compatible with other services.”

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