There's a lot happening in Apple's (NASDAQ:AAPL) iTunes Music Store today. Between the rollout of variable pricing and the introduction of Sony's (NYSE:SNE) $17 package of multimedia goodies from The Fray, iTunes is no longer a one-price dollar store.
It's a true virtual bazaar. Labels with booming acts can offer hot tracks at $1.29 while they blow the cobwebs off older titles that weren't moving with a value-minded $0.69 price tag.
The Fray's package of songs, video clips, and other goodies also helps revolutionize the fan club concept. It's a win-win-win as labels find new ways to monetize their content, bands get to build deeper relationships with their fans, and Apple -- once again -- establishes itself as the only hub that matters for digital music.
Oh, if only it were that easy.
Bang a gong, Amazon
Market research specialist NPD Group has some encouraging news for Amazon.com (NASDAQ:AMZN). A recent survey revealed that 87% of the digital-music buying audience made a purchase through iTunes last year. However, 16% of the audience hit up AmazonMP3 for their musical needs.
At first glance, it's clear that Apple is the market leader, but it isn't a monopoly. Work the math to realize that 87% and 16% add up to more than 100%, and you will realize that at least a small chunk of the once-loyal iTunes audience is shopping around.
Amazon isn't going to overtake Apple in digital music anytime soon. However, as digital rights crater and variable pricing prompts comparison shopping, the iTunes ecosystem may not be as solid as it used to be.
Big G in bigger China
A price war with AmazonMP3 is perhaps the least of Apple's problems. After all, Apple is in the iTunes business to sell iPods and iPhones. It can afford to take a hit on digital tracks if it has to, as long as it spurs hardware sales. Amazon doesn't have that luxury, even if it can always rationalize digital music as a loss leader to move physical CDs and portable-media gadgets from its store.
No, the bigger concern is what is happening at the other side of the world. In an attempt to gain on Baidu (NASDAQ:BIDU), Google (NASDAQ:GOOG) began offering free music downloads with an ad-supported model.
Piracy runs rampant in China, so labels believe that slivers of a revenue-sharing deal on select tracks is better than nothing at all. It's a model that may make sense in a country where supposedly 99% of the music being downloaded is the result of piracy, according to the International Federation of the Phonographic Industry. But it would never work here. There is no stateside advertiser stupid enough to pay $0.99 -- or even a nickel -- to subsidize what a legal download would cost.
However, what if the move could be justified in volume? What if hungry indie labels experiment with the model? What if the same groundswell of displeasure that builds domestically -- for instance, when prescription drugs cost so much more than the same medicine in Canada -- begins mounting over what Google is doing in China?
As the market leader, Apple should be able to hop on the coattails of any trend, but what if it's too proud?
Other barbarians at the gate
NPD Group put out another interesting digital-music study last month. Morsels worth chewing on:
- The number of Internet users who purchased CDs or digital music last year fell to 58%. It was 65% in 2007.
- Awareness of music-discovery site Pandora doubled last year to 18% of Internet users, with a third of those folks using the service.
- Nearly half of the Web-tethered teen audience is streaming music on social networks such as Facebook and News Corp.'s (NYSE:NWS) MySpace. This group represented just a 37% slice a year earlier.
In other words, the musical consumption experience is already morphing from a retail experience to a streaming experience without having a cash register go off at the end.
It's only going to get harder for Apple to stand out.
Just last month, Sirius XM Radio (NASDAQ:SIRI) upgraded the sound quality of its Web-based offering. Google's YouTube is brokering deals with major labels to make their music more accessible on the popular video-sharing site.
In the old days, you heard a song on terrestrial radio and bought it on iTunes when you got home. These days, the real gatekeepers are sites such as Pandora, YouTube, and even the Sirius XM Internet feeds. They are free to direct the declining number of listeners interested in actually buying what they're hearing to anyone other than Apple.
Apple rocks on so many other levels, but the musical feast appears to be on the decline.
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