I was a typical iTunes consumer. Since it was launched 10 years ago I used it often to download songs, but not as much as I used to.
Today however there are so many other options, such as free online radio services Pandora and iHeartRadio, music-listening on YouTube and on-demand services including Spotify and Rhapsody that let you listen to millions of complete songs for a monthly fee.
Now as Apple prepares to mark the 10th anniversary of the iTunes Music Store on Sunday, it sees a radically different music landscape not as predicated on downloads.
Ten years ago, record stores were in full force (although hurting) and music downloading was something young folks did at pirate websites. The introduction of iTunes, where all songs were 99 cents and could be easily transferred to an iPod, made downloading mainstream.
“We thought if consumers had a great, legal way to download music, they would embrace it,” says Apple Senior Vice President Eddy Cue. “Apple was floored, as were the labels, when customers bought over 1 million songs during the first week.”
The iTunes Store launched with 200,000 songs and now has 26 million. Within 10 years, it would become the top retailer of music, selling more music than Wal-Mart, Target and Best Buy. Record store chains Tower and Sam Goody are out of business.
When Apple reported its quarterly financial results this week, it said it sold a record $4.1 billion worth of media on iTunes, but that includes music, movies and TV shows, books and apps. In 10 years, some 25 billion songs have been sold on iTunes. Less clear is how long the music download party will continue.
“There is a major shift to how consumers consume music, and it’s driven by the smartphone,” says Gene Munster, an analyst at Piper Jaffray.
The ubiquitous smartphone — whether it be the iPhone, an Android model, or a recent BlackBerry or Windows phone — has storage for our contacts, a Web browser and the ability to listen to multitudes of songs over the air.
The iTunes store dominated by downloads “is on its last gasp,” says Bob Lefsetz, a former music industry lawyer and blogger at the Lefsetz Letter. “YouTube is where most young people listen to music now.” (More than 1 billion people visit the site each month.)
“When iTunes turns 15 years old, we won’t be talking about downloads, because Apple won’t be selling them,” he says.
Apple until now has resisted expanding beyond downloads, saying consumers wanted to own songs, not “rent” them.
But this year, perhaps as early as June, it is expected to unveil a personalized radio service similar to the popular Pandora (which has 200 million registered users) that would get prominent display on Apple devices.
When the service analysts have called “iRadio” launches, downloads will no longer be as dominant, says Ted Cohen, a former executive with record label EMI who runs the Tag Strategic consulting firm. “People will say, `Why didn’t anyone think of this before?’ Apple wasn’t the first to have music downloads. But when iTunes Store launched, people acted like it hadn’t been done before, because Apple did it so well.”
In a sign of the times, Apple appears to be testing the waters for online streaming. In iTunes now, a preview of country singer Kenny Chesney’s new Life on a Rock album can be listened to in its entirety online — several days before the album is available as a download sale. Earlier this year, Apple streamed new albums from Justin Timberlake and Depeche Mode.
Yet despite the acclaim for music services such as Spotify and Pandora, downloads still dominate how consumers obtain digital music, says Russ Crupnick, an analyst at researcher NPD Group.
According to the worldwide music trade group, the IFPI, some $5.6 billion was spent on digital music in 2012, with downloads accounting for 80%. Revenue from music services grew from 14% in 2011 to 20% in 2012.
Customers of services such as Rhapsody (with over 1 million subscribers) and Spotify (5 million) are in major population centers, NPD’s Crupnick says, and they don’t care as much about owning music. Elsewhere, though, “there are tens of millions of people who still, even if it’s on a phone, still want their iTunes collection,” he adds.
NPD gives Apple a 63% market share for music download sales in the most recent fourth quarter, compared with its closest competitor, Amazon, at 22%. Last year 44 million Americans bought at least one song track or album download, a statistic that has remained stable over the last three years, Crupnick says.
“If downloads were still important, we’d all need more storage,” Lefsetz says. “Apple knows which direction this is going.”