December 18, 2006
iTunes Sales Dropping? Questions About the Continued Growth of iTunes and the Controversial Meanings of Numbers

A new report from Forrester Research indicates that iTunes sales dropped by 65 percent during the first half of 2006. Forrester researched almost 3,000 iTunes purchases in preparing the data, finding that the post-holiday season indicated a peak and a dropoff from that point forward.

However, the release of the study and the reports in the media following it created a growing amount of controversy.

A story in Thursday's Independent Online in the United Kingdom by Martin Hickman reflects some degree of controversy as to the truth of these figures, as a company spokesperson in the article--who was not named--said that the charge was "simply incorrect." "Apple is leading the digital music revolution with almost 70 million iPods sold and a stunning 1.5 billion songs purchased from the iTunes store," the spokesperson said. This quote was attributed to Tom Neumayr by Scott Martin on Red Herring.

The Independent story also quoted Josh Bernoff, who wrote in the report for Forrester that "iTunes won't save the music business or Apple." The question, of course, is whether online downloads of music were a fad that people are moving away from, whether Apple competitors are starting to make in-roads, or perhaps a third option, where users chose to bolster their music collection at first and, after downloading the music they wanted the most in short order, decided that was enough. I can think of similar phenomena when it comes to releasing the archives of various old shows. Everybody may have certain shows they want in their collection, but they aren't going to keep buying old shows just because they are released but rather are looking for specific purchases to flesh out their collection.

Bernoff was quoted as saying that the sales were "leveling off," not collapsing, and that the report was not meant to demonstrate the beginning of the end of iTunes but rather a stabilization process.

Meanwhile, analyst Steve Lidberg from Pacific Crest Securities was quoted by Dina Bass with Bloomberg as saying that "digital album sales have more than doubled to date" and that Apple is rated "outperform" by him, contradicting that there has been "a slowdown in digital music sales."

Martin includes quotes from several other analysts who dispute Bernoff's claims, including Gene Munster of Piper Jaffray, Michael Rubin of comScore, and Shaw Wu with American Technology Research. These numbers find varying degrees of increase to contradict Bernoff's claims. With so many other analysts disputing the claim, Martin indicates his suspicions as to the validity of Bernoff's study.

Bernoff detailed his account of how the situation was blown out of proportion and how he believes the data was taken out of context in various news accounts, led by stories that tried to sensationalize his findings. "With the number of transactions we counted it's simply not possible to draw this we pointed out in the report. But that point was just too subtle to get into these articles."

The controversy will likely to continue to have fallout, but it's interesting to see both conflicting numbers and--more important than what these numbers mean--the various ways people are attempting to analyze and understand what these numbers mean. Market analysis and predictions are a rough business. Bernoff was here at our Futures of Entertainment conference, and an analysis of the panel he was on is available here and an audio version here.

Perhaps of particular interest--Bernoff pointed out the difficulty of making predictions in an industry where he is probably right 65 percent of the time, which is considered very successful. The debates here with the iTunes situation is as much about the limited ability we have to predict what is going on, as it is happening or before it comes to pass, as they are about Apple in particular...

Also, be sure to check out David DeJean's analysis of the situation as a whole at InformationWeek. He says, "Forrester denied it ever said it, and blamed the media for inaccurately reporting. And it may be right. But it's not entirely blameless, either. Apple, as is its wont, didn't say anything -- and that was part of the problem, too, not part of the solution."

Thanks to William Uricchio for sending this along.