iTunes sales are NOT plummeting! Press credibility, on the other hand . . .

[Josh] What an interesting couple of days it's been. What follows is a case study in how information -- and misinformation -- spreads on the Net.

We put out a simple little report about iPods and iTunes based on credit card transactions and publicly stated Apple data. And for those who aren't Forrester clients, I blogged the highlighs. In case you are wondering, we ran the report by Apple, and they declined to comment.

Since then:

- The New York Times ran a little fairly balanced pieced on the research. This got us on the media's radar screen. Then . . .

- A UK outfit called The Register and Bloomberg decided to dive in and highlight one finding of the report -- that iTunes sales had dropped in the first six months of this year. We got treated to wonderful headlines about iTunes sales "collapsing" and "dropping" and "plummeting" and so on. Now for the record, iTunes sales are not collapsing. Our credit card transaction data shows a real drop between the January post-holiday peak and the rest of the year, but with the number of transactions we counted it's simply not possible to draw this conclusion . . . as we pointed out in the report. But that point was just too subtle to get into these articles.

- Apple's stock actually did plummet -- 3%. I started getting calls from hedge fund managers. Apple's spokesman called and, although they refuse to go on the record with any facts, they're clearly upset. And I also heard from the Chicago Tribune, San Francisco Chronicle, LA Times, Financial Times, Toronto Globe and Mail, thestreet.com, etc. At this point I was trying to get people off the "65% drop" idea and onto some of the more interesting ideas in the report, with mixed success.

Now, you can't unring the bell. But I will try to focus you on the truth here, which is this: iTunes sales are leveling off, the Journal did an article about it last Friday with data from Soundscan. Apple is not in trouble -- it makes its money mostly from iPods, and iTunes is just a way to make that experience better. It's the music industry that has to worry, since the $1 billion a year or so from iTunes, globally, doesn't nearly make up for even the drop in CD sales in the US, which are now down $2.5 billion from where they were.

Finally, a word for Apple. Apple is extremely stingy with information about their business and public comment. Their unwillingness to comment on the record or off about anything they're working on or any industry results beyond the basic statistics fuels speculation, pro and con, from their supporters and detractors. In the research business we like facts -- and every other technology company is more open with them. So maybe it's time for Apple to share a bit more. When the real bad news hits -- and it's inevitable, no company gets everything right -- that openness would pay off.

I'd really like your comments ... interested in hearing from you.

Technorati tags: Bernoff, Forrester, Apple, iTunes

Comments

[GadgetGav]

Having chided Apple for not releasing more information and having started the story that lead to a 3% decline in the company's stock, it would be nice if Forrester could find some way to release this report into the public domain rather than making us pay $250 to see the real figures and analysis...
I realize a lot of work went into this, but I'd assume it has a limited life to a very limited market. Once your initial sales have dried up, will it be released for free..?

[timk]

Thanks, Remy.

That's what I thought. Who reports on any such random six month allotment? (I don't want to be overly critical, I appreciate the response and the discussion.) But that, right there, is why the finger should be pointed at you guys as well as the media. Why did you neglect year over year entirely? Piper Jaffrey seems to be spanking you on this, and Josh's attempts to claim the report is accurate but the media got it wrong seems strongly diluted by this significant lacking.

"However, the January 2005 revenue was a bit higher than the January 2006 revenue"

This doesn't seem plausible; do you have that correct? Looking at your own tables (http://blogs.forrester.com/.shared/image.html?/photos/uncategorized/itunes_and_ipods_1.jpg) and knowing that prior to last year we were talking about increments of one or two million per month rather than millions per week and that last year was Apple's biggest year for holiday sales of both products, I think you have that backwards. There certainly was more revenue in January 2006 than January 2005. No? Certainly if it was lower, someone within the financial community would have picked up on it in the 11 months since...

From there, it gets difficult to question whether June '05 was much better than this year. However, I would repeat the question: did you see June as the low point for sales in the 27 months of data? If not, which month? If there was not a specific month per year, what fluctuations did you see? And, additionally, rather than saying we cannot confirm a dip because of potential seasonality, could you have said, there is a strong indication that there is seasonality (if you are seeing an uptick around the holiday season)?

Also, previously, I hadn't suspected your sample pool. But now I know we are talking about 181 purchasers out of 2,791 purchases (or 15.4 purchases per purchaser) over 27 months to represent a market of 60 plus units with 1.5 billion tracks... and I'm getting concerned.

Also, can you explain how if the number of iTunes per iPod (despite the poor waulity of such a metric for obvious reasons) has continued to grow (from below 20 to above 22) according to your own numbers, how is the market slowing? I simply cannot understand that. It seems to me that based on your own metrics and numbers, the iTunes market is growing faster than the iPod market. Almost negligibly, yes, but not slowing at all.

Thanks again. To both you and Josh.

[timk]

Also, Remy, based on this comment: "However, the January 2005 revenue was a bit higher than the January 2006 revenue, and the June 2005 revenue was more than twice the June 2006 revenue."... Clearly you are jsut portraying data for two months and there could be significant data gaps but... January is most certainly the biggest month.... According to you, the revenue declined in '06 from '05 for their biggest month and for )possbily) their slowest month revenue declined from '05 to '06 by HALF? Wouldn't that suggest that not only has growth slowed, it's disappeared and actually declined?

Rather than clarified, I think you've confused the situation a bit more.

[mark]

You claimed to have used Apple's public data, but that data from Apple's press releases only shows that there is a little bit of a dropoff. Did you try to reconcile it with your credit card or Soundscan data?

From 2/23/06 to 10/26/06 (or somewhere up to 20 days before that), iTS sold .5 billion songs, for a rate of 2.04m per day. From 7/18/05 to 2/23/06, iTS sold .5 billion songs, for a rate of 2.27m per day. From 1/24/05 to 7/18/05, iTS sold .25 billion songs, for a rate of 1.43m per day.

So big increase from 05 to 06 but small dropoff across the last two .5 billion data points, which could easily be accounted for by seasonality.

I don't have your report but you could have easily made this simple math clear for all.

[mat]

Josh -- I was totally taken aback when I first saw this yesterday via Engadget and wrote a long post (http://mac.honan.net/2006/12/itunes-collapse-orly.php) trying to get to the bottom of the "collapse." Though I had only seen your previous post on the subject, it looked to me like those numbers were used without the proper context--especially the seasonal sales information.

But I have a question. Looking at the RIAA's numbers (http://www.riaa.com/news/newsletter/101206.asp) it would seem that digital sales are still trending way up:

"On the digital side, revenues from various formats, including downloads, kiosks and digital videos, grew by 86.6 percent in the first half of 2006, with digital formats' share of overall industry value growing to 18 percent in the first part of 2006 -- up from 9 percent in the first half of 2005."

Did your findings run counter to this?