Apple dominates online and portable music markets
On July 18, Amy Greer purchased “Mississippi Girl,” by country crooner Faith Hill from the iTunes Music Store (iTMS). In doing so, she downloaded the 500 millionth song from Apple’s online music source.
Incredibly, it was only in January when Apple sold its 250 millionth song—meaning that in the past five months the iTMS has sold as many songs as it has in its previous two years, and simultaneously defying expectations.
Just days ago, stock market analysts were predicting a slowdown for Apple as people began to lose interest in the iPod. Instead, when Apple posted its third-quarter results on July 13, it announced $320 million in profits—its best ever—with no signs of flagging iPod sales.
In fact, profits were largely driven by the iPod. Apple shipped well over 6 million of the music players last quarter, a 616 percent increase from the same quarter one year ago. Those iPod sales, in turn, could generate even more business for the company’s music store. Don’t expect those numbers to come down, says Jupiter Media industry analyst Michael Gartenberg.
“It wouldn’t surprise me if it actually increased the rate instead of slowing down because they’re selling more and more iPods every day,” Gartenberg tells Playlist . “Each of those is a potential customer who is being exposed to the iTunes Music Store.”
When Apple launched the iTMS, it was largely the only game in town. Although services such as eMusic were already in the marketplace, the iTunes Music Store was the first big player to sit at the table. As competition came around, from Real, Yahoo!, Napster, Sony, even Wal-Mart—often with lower prices than found on the iTMS—many analysts began to predict the new music services would have a detrimental effect on Apple’s sales.
Yet as competition heated up, so too did iTunes Music Store sales. Apple still owns roughly 70 percent of the global market for online music sales. Though subscription services offered by competitors might make for cheaper tunes, customers still preferred Apple’s download model.
“They’re appealing to different markets,” explains Gartenberg. “In terms of the downloads, Apple continues to reign supreme. The downloads are driven by devices and the iPod continues to dominate that. The real challenge is whether Napster and Yahoo! and Real can convince consumers on the subscription model, but that’s a fundamentally different way of thinking about music.”
“In the short-term you’re looking at a different customer base, and in the long-term they need to convince the market that [a subscription plan] is a correct way to buy music. Of course, if they do Apple could always introduce a subscription plan.”
On January 9, 2001, Apple, following a calamitous quarter in which it lost $247 million, released the first version of iTunes, a program largely based on an existing application called SoundJam. On October 23 of that year, at a special press event in Cupertino, Apple handed out the first 5GB iPod models to members of the media—fully loaded with music by Bob Dylan, Simon & Garfunkel, and others. In order to comply with copyright laws, the company also passed out CDs for each album that was placed on these introductory iPods. When the year closed, Apple’s stock price stood at $10.95.(*)
On March 20, 2002, Apple introduced a 10GB model, a month later it released drivers that make the device fully compatible with Windows. In July, at Macworld Expo, Apple released its first major product upgrade—new iPods come in 20GB models with scroll wheels. Apple also lowered iPod prices. At then end of the year, Apple’s stock stood at $7.165 and analysts were unimpressed.
2003 was a big year. On April 28, the company released its third major product revision, the third-generation iPod. This model sported touch-sensitive buttons, and offered capacities up to 30GB in a new enclosure the company described as “lighter and thinner than two CDs.” To fill all those gigabytes, Apple announced another major product on the same day: the iTunes Music Store. One week later, the store sold its millionth song.
By June 23, 2003, at Apple’s Worldwide Developers Conference, Apple had sold 5 million songs and shipped one million iPods. In midyear, when the company released its third-quarter results, Apple announced a net profit of $19 million. Within a few days, the stock was up from just under $10 to $10.40.
Apple kicked off 2004 with the iPod mini and the news that it had taken only six months to sell the second million iPods. The company posted a net profit of $63 million in the first quarter of 2004. The iTMS had a 70 percent share of the legal music download market. The stock price began the year where it had been for ages, at about $10.50 per share.
In April 2004, on the first anniversary of the iTMS, 70 million tracks had been sold. In June, Apple launched a European iTMS where it sold 800,000 songs in its first week. On July 12, Kevin Britten bought the 100 millionth song from the iTMS. Shortly afterwards, Apple rolled out the fourth-generation iPod with the same click-wheel found on the iPod mini, released in January of 2004. Apple also announced a deal with Motorola to bring the iTMS to phones. By the end of July, the stock price was up over $16, and began an earnest rise in August.
Three years and two days after the release of the original iPod, the company launched the iPod photo and the U2 limited edition iPod. More than 150 million songs had been sold, and the stock price was up over $20. In December, the iTMS Canada went online. Apple’s stock surged at $32.30 by year’s end, and over 200 million tracks had been downloaded from the iTMS. Analysts were, unsurprisingly, ga-ga over the iPod and the iTMS.
2005 began with the release of the iPod shuffle and the news that the iTMS had sold over 250 million songs. In February, Apple rolled out new versions of the iPod mini and iPod photo. The company also announced a two-for-one stock split. Denmark, Norway, Sweden, and Switzerland got their own iTMS in May. In June, Apple merged its iPod and iPod photo lines.
But there were problems as well, beset by environmental protesters, Apple announced an iPod recycling program. Also, the company agreed to settle a class-action lawsuit based on what some believed were spurious claims about the iPod’s battery life—offering a US$50 coupon and extended warranties to iPod consumers who could produce a receipt. Analysts warned that Apple’s third-quarter sales would be lower as, in their view, consumers were cooling to the iPod. Yet on July 13, the company defied expectations and announced the highest revenue and earnings in its history, with a net profit of $320 million; profit growing 425 percent over the previous year.
July 18, 2005, Amy Greer purchased “Mississippi Girl,” by Faith Hill. It was the 500 millionth song sold by the iTMS. When this article went to press, Apple’s market cap stood at $35.20 billion, with a share price of $42.73.
*NOTE: All prices have been adjusted for the February 2005 stock split.
Mathew Honan is a San Francisco-based writer and photographer. His work has also appeared in Macworld, Wired, Time, and Salon.
For more on the iPod, please visit the iPod Product Guide.