Has iTunes Peaked?

Consumers don't download as much music as they once did.

Quoting an NPD Group analyst speaking at an industry event in New York earlier this week, CNET reports that there were 1 million fewer music download buyers during 2009 than the year before. Has Apple's (Nasdaq: AAPL  ) iTunes peaked as a music store?

In its current form, possibly. Pandora Music's free streaming service doubled to more than 40 million users and $50 million in net revenue last year, CNN reported recently. Free is tough to compete with.

Just ask Sirius XM Radio (Nasdaq: SIRI  ) . Satellite radio's kingpin lost subscribers during 2009. So did Rhapsody. Consequently, RealNetworks (Nasdaq: RNWK  ) and Viacom's (NYSE: VIA  ) MTV have agreed to spin off the struggling streaming service as a separate company.

Yet these are the lucky ones. Music companies Warner Music (NYSE: WMG  ) , Universal Music, EMI, and Sony's studio group are left to figure out how to earn more when fewer are willing to pay to find and download tracks.

Apple, for its part, appears to have known this day was coming. In December, the Mac maker spent an undisclosed sum to acquire Lala.com, a Web-based service that allows users to search for and stream music from within a Google search page.

Lala's most attractive feature is price flexibility. After an initial listen, users can either pay a small fee to stream selected tracks on demand directly from the Web, or download directly to their computers.

NPD senior analyst Russ Crupnick has a different idea. He told executives in attendance at the Digital Music East conference that consumers want labels to tell them what to buy. Accordingly, he'd hire experienced marketing executives from Kraft (NYSE: KFT  ) or Colgate-Palmolive (NYSE: CL  ) , CNET reports.

Perhaps he's onto something. I'm more inclined to believe Apple has it right. In flocking to Pandora and Lala, music lovers have pledged allegiance to services that allow them to fully discover and buy tracks on their own.

Consumers aren't rudderless, and they haven't tired of iTunes and digital music. They just want a better delivery mechanism. Here's hoping the industry hasn't gone tone-deaf.

Should labels kick up their promotions machines? Discuss using the comment boxes below.

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Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He had stock and options positions in Apple at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy would kick the stupid copier if it had legs.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 26, 2010, at 2:05 PM, drewmanone wrote:

    I think your point is very well taken. I personally do not use Apple because I find it isolated from more universal brands. So it peaked? Yes but nonetheless it raises bigger questions about why do people want to buy music in this form in the first place? If you listen to the radio a lot of the music is poorly thought out and simple minded so yes the music industry needs to make a lot of serious appraisals of its talent and stop relying on television like glee and american idol to deliver the popular music norm. Where is the creativity?

  • Report this Comment On February 26, 2010, at 2:05 PM, drewmanone wrote:

    I think your point is very well taken. I personally do not use Apple because I find it isolated from more universal brands. So it peaked? Yes but nonetheless it raises bigger questions about why do people want to buy music in this form in the first place? If you listen to the radio a lot of the music is poorly thought out and simple minded so yes the music industry needs to make a lot of serious appraisals of its talent and stop relying on television like glee and american idol to deliver the popular music norm. Where is the creativity?

  • Report this Comment On February 26, 2010, at 2:15 PM, marv08 wrote:

    Huh? Facts please! Any of these subscription services making money? Wasn't it Warner that lost millions in financing Lala to build up competition for Apple/iTunes and finally handed it to, yep, Apple for change?

    As you might have seen this week, Apple just sold its 10-Billionths song, and the sales rate is still going up (that is the answer to your headline) - nothing has peaked here.

    The industry was reporting that the increase of prices from 99 Cents to $1.29 for some songs had some negative impact. Drawing a line from a 30% price increase in a recession (dumb) to peaking interest is not quite obvious (to say the least)...

    You also make the assumption that Apple will continue to operate Lala as a streaming service. This is more than unlikely. All licenses with the labels will expire the minute the ownership changes and Apple does not believe in subscriptions for music. If they would, Rhapsody and Spotify apps would not be allowed on the App Store. At max they will allow iTunes customers to store their content in the cloud.

  • Report this Comment On February 26, 2010, at 2:30 PM, TheGift wrote:

    You are one hell of a journalist my friend,

    Well to answer you question, no it has not peaked...Here is a fact, not just a thin air wild guess..

    It took itunes 62 months to sell 5 billion songs...

    The 2nd 5 billion took 20 months...

    Those are facts...I would love to hear your statment on this....

  • Report this Comment On February 26, 2010, at 2:56 PM, geoslv wrote:

    Has itunes moved their customer service to a third-world country? I've just had such a deficient useless experience trying to solve a problem, I'm deciding not to bother with itunes any more. I'm using itunes Canada if it matters.

  • Report this Comment On March 01, 2010, at 7:30 AM, steveballmer wrote:

    ZuneTunes is coming and will change everything baby!

    http://fakesteveballmer.blogspot.com

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