iPod Sales Continue to Grow, But Future Less Bright for Digital Music Sales

Mark Mulligan[Posted by Mark Mulligan]

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Apple yesterday announced it’s Q4 sales results and have
proven that they can thrive even in tough economic climates.  I’ll leave discussion of the broader results
to my colleagues though, focusing here on the iPod sales figures and what they
mean to the music market. 

Q4 '08 was actually another record quarter for iPod sales,
just (see chart below for long term trend).  This is no mean feat for a premium end product. Though the broad product and price point portfolio,
combined with pricing initiatives no doubt helped them pull in more value
focused customers during this period also.

So iPod sales continue to grow at record rates as do iTunes
Music Store sales (record Christmas day and week sales also).  That’s good news for the music industry
right? Well, yes and no.  Undoubtedly this is important revenue and an
important part of the digital transition.  But iPod sales just aren’t growing strongly
enough to be driving the sort of growth in digital music buyers that the
industry needs. 

Well Apple’s dominant share of the digital download market
effectively make Apple’s iPod and iTMS sales numbers synonymous with digital
music sales trends.  If iPod sales
sneeze, the digital music market gets a cold.

Ipod_sales_3Looking at the chart you can see that the first big surge
happened Q4 ‘05, and another in Q4 ‘06.  These were the ‘step change’ quarters. These were a direct stimulus to digital music
sales, augmenting the installed base of buyers.  We can look at the lion’s share of these sales
as being new customers and therefore new Net adds to the installed base of digital
music buyers.  But by Q4 ‘07 and ‘08,
even though there are record sales, we have to factor in a significant portion
of those ‘Class of ‘05 and ‘06’ buyers, replacing their original iPods and/or
getting additional devices.  Thus the
rate of growth of new digital music buyers slows.

iTMS sales are certainly booming, and the rate of downloads
per iPod sold is growing solidly. So
iPod owners are becoming more valuable digital music buyers.  But the new buyer growth isn’t as strong as it
was in ‘05 and ’06.  Yes, this is to be
expected as a technology matures, but digital music buyer penetration is in
single digit percentage points in most markets, so its not broken out of niche
yet.  This is the stage where growth
should be accelerating, not slowing.  All
of which is part of why the music industry is now spreading its digital net
wider than sales alone.  To find out more
about this:

 

Read our press release here

Read my previous blog post here

Forrester clients read the report here

 

So Apple’s iPod and iTMS sales are very welcome in these
challenging times.  But they also
highlight that the industry cannot rely upon Apple alone to save it.  Indeed, that’s not a burden Apple ever asked
to carry.

 

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