iTunes Becomes Seventh Largest Music Retailer

At stereophile.com, John Atkinson, Jon Iverson, and I troll the Internet constantly looking for audio-related news, so on November 21,when I spotted an article by John Borland about iTunes outselling traditional retail record outlets like Tower and Borders, I passed it on to the other two without even thinking about it.

"Sounds worth a story," JA suggested. And it was, but it turned out not to be the story most of the media was telling.

Borland reported that the NPD Group had released a survey that compared album downloads at iTunes to complete album purchases at ordinary record stores (using the conversion that 12 iTunes songs equals one album). The iTunes music service was ranked seventh, which placed it in the top 10 for the first time. Positions 8, 9, and 10 were occupied by Tower Records, Sam Goody, and Borders. Borland's take was that this performance represented a "benchmark ... a meaningful sign in digital music's steady progress—and Apple's domination of that trend—toward becoming a significant part of the overall music business."

In his next paragraph, however, Borland quotes the Recording Industry of America's (RIAA) statistics that digital music sales accounted for only slightly more than 4% of the market, as compared with 2.5% last year. That doesn't sound like a meteoric rise.

A look at the top six positions in NPD's Top 10 chart reveals that iTunes' success isn't so much a matter of Apple's growth as it is the erosion of "traditional" record outlets. Wal-Mart, BestBuy, and Target occupy the top three slots, followed by Amazon, FYE, and Circuit City.

Wal-Mart, BestBuy, Target, FYE, and BestBuy all move a huge amount of hit merchandise—all of it heavily discounted. Amazon offers deep catalog and, frequently, very good pricing. So who did Apple out-compete? Borders, not known for deep discount, and Tower and Goody, which have been having a difficult time attracting customers over the last few years, partially because they are not perceived as having competitive pricing, and partially because both have abandoned the deep catalog strategy that made them destinations in the first place.

My analysis of Apple's market growth? It does have deep catalog—if you ignore the major artists, such as the Beatles, who have yet to sign on. Pricing on iTunes is not great, especially on "albums" with fewer than 13 tracks (when individual tracks cost 99¢, Miles Davis' six-song Kind of Blue doesn't look like a bargain at $9.99). But it is easy to use and conveniently located (why, it's right on your desktop).

Of course, iTunes downloads are also heavily protected in a DRM sleeve, which is another minor point that I suspect the record labels are going to ignore when they decry the "death" of record stores. In fact, iTunes customers pay a premium price for their music and they get low resolution and portability headaches along with their songs.

The whole issue of different DRM programs being incompatible is probably the biggest reason iTunes didn't rank higher on the NPD list. David Berlind went so far as to call DRM "The Grinch Who Stole Christmas," pointing out that a whole raft of products now protect content in ways that not only limit how legitimate consumers can use what they've paid for, but are so deliberately confusing that consumers may simply choose not to be disappointed—by not buying anything.

Oh for the days when consumers knew that the cassettes they recorded on their hi-fis could be played in their cars—or on a boombox or in a Walkman (remember when Sony mattered?) or even over a telephone answering network! Nostalgia for that era may be responsible for products like the Plus Deck 2, a cassette deck that fits into a computer's 5.25" hard-drive bay and allows you to play or record sounds on your computer or convert your cassettes to digital files. No DRM restrictions, no fuss—what a concept.

Back when cassette was the dominant format, everybody owned the means to record music, and record labels—and record stores—still managed to sell a lot of music. Maybe the current market slump is less a matter of consumer thievery and more the fact that my Rio can't play my iTunes downloads and Tower doesn't carry the music I want.

Maybe it really is as simple as the fact that paying more for less just doesn't seem like a bargain.

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