Apple: A Flat Five Billion

This story was written by Rafat Ali.
[by Paul Resnikoff, Publisher, DigitalMusicNews] Five billion is a large number, in virtually any context.  Five billion people is a lot of people; five billion dollars (or pounds or euros) is a lot of cash.

It is also a lot of song downloads.  But viewed from the perspective of the major stakeholders involved, five billion downloads is not that exciting.  And more importantly, measured across a period of five years, the number is now the latest reminder of a flattening product curve.  And next to the sinking disc, flat is bad, regardless of the cumulative.

That is not to diminish the accomplishments of Apple and the iTunes Store, which are substantial.  In 2003, the paid music download was a backwater item, confused by irregular pricing, tethered access, and conflicting DRM schemes.  It was totally uninviting to the prospective consumer, and a short-lived mistake for the adventurous buyer.

The transformation away from that false start has been an exciting process to watch, and we all know the elements of success.  Apple changed the market by injecting uniform pricing, portable compatibility, and a sensible, easy-to-use ecosystem into the equation.  And that is why Apple dominates the paid download landscape today, and remains a frustratingly dominant player for major labels.

Labels want more control over the paid download, especially through pricing, and Apple refuses to play along.  But the biggest hangover has been lingering for years.  Because the paid download is a financial sideshow for Apple, a decorative extra surrounding its meat-and-potatoes hardware, notably the iPod.

And for the broader recording industry, the blue-sky optimism surrounding the paid download has given way to a rainy day reality.  Paid downloads, and other digital formats for that matter, have failed to compensate for the loss in physical product.  The paid download is a product that topped out at a certain level, and has failed to accelerate again.

Just look at the rate of increase in the paid download market over the past two and one-half years.  Sure, it took Apple nearly three years to hit its first billion (February, 2006).  But those early-stage, hockey-stick increases involved smaller volumes, and are now ancient history.

The more recent rate of growth is far more important.  And a quick review shows a relatively flat trajectory.  Apple hit four billion in January, more than six months ago (announced by Steve Jobs at the 2008 MacWorld Expo).  Prior to that, the store crossed three billion in late July, 2007, roughly six and one-half months before the fourth billion.  Before that, the two-billion mark was accomplished in early January, 2007, seven months before the third billion.

Get the picture?  And forget about competing paid download providers like Napster, Amazon, and Rhapsody, because they mostly amount to rounding error.  Apple rules this roost, and their sales trajectory is mostly flat, even at five billion.

This story was provided to us by our content partner DigitalMusicNews.

By Rafat Ali