And let there be no doubt, iTunes is the big dog on the block today. New data released last week by The NPD Group reinforces this fact with some astounding numbers: Nearly 70% of music files downloaded legally between December 2003 and July 2004 were downloaded from iTunes. NPD reports that Napster's share for the same time period was 11%, while MusicMatch, RealNetworks, and Wal-Mart each reached a 6% share.
But there is a catch. The researchers say that the number of consumers paying for downloads reached a peak of 1.3 million in April 2004. NPD's Russ Crupnick says that "over the 18 months since iTunes launched, paid music download services have been hoping for huge increases in paying customers; however, the number actually doing so has declined to about one million users per month."
According to NPD, this statistical downturn coincides with the end of promotional periods offered by several of these services, in which consumers were offered trial price incentives. Crupnick says that building demand for paid music download services "requires even greater investment in consumer promotion, as well as broadening partnerships with traditional music retailers and consumer goods companies. We've seen that promotion works, but it's had a short-term effect so far, which is typical for traditional consumer goods. The trick is in phasing promotions, so that there is a cumulative positive effect on the target market."
While the early success of iTunes has turned a few industry heads, there is still much more work to do before downloading becomes a solid success. Crupnick notes that his company's research suggests that at this stage of the business, it's not so much about building share as it is about creating demand for paid downloads in general. "The overriding challenge for paid music download services is to first make the concept enticing to a wider audience and then to build loyalties to a specific service."
At the same time that download services were seeing a small decline, NPD has noticed generally higher levels of P2P use since March 2004. The company says the recent rise in P2P usage mirrors an overall increase in various digital music activities. For example, consumers are more likely to rip music to their computers (9% in July versus 7% in December) and to burn music to CDs (14% versus 10%).