his latest column for CNN/Money, Eric Hellweg says that Apple’s numbers for its iTunes Music Store downloads “aren’t justified.”
First of all, he doesn’t think the current pace of sales will last, feeling that they’ll dip to a trickle — a “respectable trickle, perhaps, but hardly a revenue stream worth the stock gains the service recently brought the company.” Secondly, Hellweg said that Apple’s reports of one million songs sold per week isn’t that impressive upon close examination.
Apple says that “more than half” of this song total was sold in album format, rather than as singles. Assuming “a conservative 12 songs per album, and one album per person,” Hellweg calculated that 500,000 songs would satisfy 42,000 customers. Assuming five downloads per person for the remaining 500,000 songs, Hellweg comes up with 100,000 additional users. That’s fewer than 150,000 people using the service, Hellweg concluded.
“Based on these calculations, the download rate isn’t as stunning as it first seems,” Hellweg wrote. “And I think this rate actually represents a burst of activity that is largely the result of pent-up demand from the Apple faithful. Of the other legitimate digital music services, only the tiny (but great) EMusic offers an Apple version, and only one major illicit file-sharing service, Limewire, is available for the Mac platform.”
The columnist quoted analyst Phil Leigh of Raymond James & Associates as saying that “most Apple users had to sit out the digital music revolution until the release of iTunes, causing an initial ‘oil well gusher of interest’.”
Leigh’s analysis seems to ignore the existence of third-party MP3 player applications that were available prior to iTunes’ arrival. Hellweg also added that, “according to people familiar with the matter,” for every 99-cent download Apple sells, the labels take 60 to 65 cents.
“With that remaining 34 to 39 cents, Apple must shoulder the infrastructure and marketing costs, leaving very little for the bottom line,” he writes.
He also questions why Apple isn’t releasing sales figures for the iTunes Music Store’s third week. (Apple didn’t comment on Hellweg’s calculations and deductions.)