12.30.2006 

Return to Sender

Best Buy returns table
I noticed something interesting at the Bowling Green, Kentucky Best Buy just after Christmas. The returns table was loaded with mp3 players of nearly every imaginable stripe, but not a single iPod.

I wonder how many of these were gifts that were returned because they simply weren't iPods, and Johnny only wants an iPod because that's what all his friends have. As Michael Gartenberg said to me:
“Kleenex is a generic brand for all tissues. You go to Walgreens and any box of tissues is ‘Kleenex.’ ‘Tivo’ is a generic term for DVR, any DVR is a ‘Tivo,’” Gartenberg said. “‘iPod’ is not generic for an MP3 player. Woe unto the consumer who bought something else as a gift thinking they were buying an iPod. It has not become a generic product; it’s a very specific product, from a very specific company, with white headphones, and heaven forbid the consumer erred and got that wrong.”

12.13.2006 

Wil Shipley Interview

Infinite Loop has a great interview with Wil Shipley up today. Wil's a sharp, friendly guy, I remember speaking to him when I reviewed Delicious Monster, and again at a Macworld Expo. Great interview today, and it is loaded with gems like this that help explain why his software works so well:
I'm intentionally waiting to buy a Core 2 Duo machine until I ship Delicious Library 2, because Delicious Library 2 runs so fast on the Core 2 Duos it would be unfair for me to use one day-to-day—I'd never optimize my code, and people stuck on old PowerBooks would hate me. I know a company where they recently bought every engineer a 30-inch display, and my thought was, 'Oh, man, it's gonna be hard to use their apps on a portable... .' There are so many problems you don't solve unless they are bothering you personally.

12.12.2006 

iTunes Collapse: ORLY?


Engadget has an interesting headline today: "iTunes sales "collapsing," blanket licensing to succeed?"

It's (loosely) based on an analyst's report from Forrester. I haven't gotten a copy of the Forrester report yet, but this is the kind of thing that makes me not take blogs seriously. I don't think the Engadget reporter understood the Forrester research report he cites. (Or, rather. Fails to cite.) Or maybe he just read a summary of it. Either that or intentionally made it a lot more breathless.

  1. Apple's music sales, according to Forrester's sample, fell 65 percent in the first six months from the previous year. Not through December, through June.

  2. If the Engadget reporter had bothered to read past the headlines, he might have noticed that "Forrester, which based its findings on analysis of 2,791 U.S. iTunes debit and credit purchases, said it is too soon to tell whether the decline is seasonal or if demand for digital music is falling." That's a huge caveat. It's not accurate to write, as Engadget does, that "since January, the monthly revenue going into Apple's iTMS has fallen by '65-percent,' with the average transaction size falling '17-percent.'" You have to have that seasonal caveat in there or you're doing a disservice to your readers.

  3. That digital music won't save the record industry, or that there are only a few iTMS tracks per ipod, are hardly news. (I wrote the same story for Wired magazine in the Spring.) Even as Apple sells more and more digital music, the music industry makes less on it because they earn significantly less in annual revenue from digital than physical sales both because the cost per unit is lower and because people tend to max out at four downloads per album, several (more comprehensive) studies show. So, instead of a $16 sale, you get a $4 one. The Forrester report found the median sale was $2.97, which is still in that ballpark, but even lower, and probably about right as the "four track" figure takes p2p downloads into account. Even when free, the average music consumer today doesn't download an entire album. This is true of "concept" albums even.

  4. Apple's iTMS can, to a certain small extent, be sussed out. When you look at the company's quarterly financials, iTMS and iPod accessories are listed as "other music." In q4 2005 (quarter ending around October 15) that revenue was $265 million. In Q4 2006 it was $452 million. Now, while that might represent a fortune in revenue from the kickbacks it gets for every accessory sold with a "Made for iPod" logo, it seems unlikely there is a "collapse" going on or you would see it reflected more in the quarterly numbers. In Q3 2006 (which included the lasrt two months of the Forrester study) "other music" revenue was $457 million. In Q3 2005 it was $241. Q2 2006 (which includes three months of the study) was $485 million, and in Q2 2005 it was $216.

So, in any case, while there may be a year-to-year decline, or stagnation, in sales, I think the word "collapse" is probably an extreme characterization. Since Apple doesn't break out sales as much as analysts would like, there's a lot of tea leaf reading over it.

But you can say some things with certainty. It had sold zero songs at its launch in April 2003. In January 2005, it had sold 250,000,000 songs. In July '05 it was up to 500,000,000. And it took until January 06 to sell 1,000,000,000. By September, when Jobs rolled out iTunes 7, Apple had sold more than 1.5 billion songs. While that's a longer time frame to add those half-billion songs, it certainly does not seem to suggest an overall 65 percent decline. I'd be very surprised if those numbers hold up. Finally, furthermore in Apple's last quarterly conference call, it noted that it was doing better than breaking even on the iTMS sales, which likewise does not suggest a collapse.

Oh. And as for blanket licensing: if that's the case, then why is eMusic the number two online music retailer in terms of downloads, even without any major label artists? Consumers don't want DRM, and they want to own their music. While iTunes isn't perfect, it's certainly less odious than the Windows Media options.


Update And another Oh. The Engadget post states "Notably, it's not just Apple suffering the cashflow drought, as Nielsen Soundscan reports that the "industry as a whole" is steadily declining. Additionally, research has shown that the "median household" spent just "three dollars" about six times per year, showing that digital downloads aren't exactly "replacing the CD," but rather complimenting hardcopy sales at best." I'm not sure if they are indicating that the music industry as a whole is suffering (duh) which wouldn't really follow, or that the digital market is declining (which is what I think the post is trying to say). But in any case, The RIAA numbers for the first half of 2006 show not a decline, but an 86.6% increase in revenue from a year ago. $417.2 million for the first half of 2006, vs. $223.6 million for the first half of 2005. That does not include subscription or mobile services, both of which were also up, by 48.3% and 96.8% respectively. Subscription sales for the first half of '06 totaled $96.1 million for 1.9 million subscribers, and mobile was at $356.4 million on 144.3 million units (exceeding digital sales numbers for the first half of 2005).

Meanwhile, total physical sales were down 15 percent, to $4,066.0 million from $4,786.2 million. The overall market saw a 6.1 % decline, to $4,935.7 million from $5,255.7 million in 2005.

Update #2: Forrester is publicly disavowing the Register story (on which that Engadget post was based) while Apple broke it's typical silence on these matters to note that iTunes sales aren't tanking.

12.08.2006 

My $100 Gamble

I have a bet with Ken Kurson. Ken is a longtime financial columnist for Esquire, and published the late, great Green magazine, which I used to do a bit of writing for. He's also a Mac user, and a tech enthusiast, and a generally astute guy.

At a Giants game last summer, we made a bet. I bet Ken $100 1 that in one year, Apple would still own at least 70 percent of the mp3 player and music download market. At the time, I had recently finished testing the latest iTunes Store killer, MSFT and MTV's URGE. I liked it, but overall: meh. The only thing URGE is going to kill is time. I had also just tested out the new Sansa--at the time the hot shit iPod killer du jour--and while I thought it was hot and sexy, I didn't think the Cupertino homicide division was going to be called to the scene of a crime anytime soon.

I felt my bet was pretty safe. But now I'm worried that I'm going to owe Ken a Ben Franklin, and I'll tell you why: Xbox 360. Specifically, I realized my bet was in trouble when I sat next to a guy watching movies on his PSP. Allow me to explain.

The PSP is nearly as iconic as the iPod. While my DS has sat in a drawer unused for many months, if it had a display like the PSP and an easy way to load movies or TV shows on it, you can bet that it would have a dedicated pocket in my Jack Spade man bag along with my iPod and SD600. But I'm not really a gamer, and I won't be buying a PSP just to play bootleg movies. Meanwhile, the PS3 is inspiring not a gaming and entertainment revolution, but rather questions as to Sony's solvency.

Microsoft isn't Sony. It doesn't do revolution. Rather than rolling out products that will revolutionize the marketplace (or die trying!) it tends to do things well-enough and gradually refine things, making them incrementally better. And worse. Right now, the Zune is something of a mess. Getting video on it should be easier. Squirting is neat conceptually, but lacks something in practice. But stay tuned.

Just after it rolled out the Zune, MSFT unleashed the Xbox Live Video Marketplace. While the Mac may be Apple's digital media hub, it's clear that for MSFT, it's the Xbox. As a friend said in reaction to the Xbox Marketplace, "iTV better be pretty damn good."

If the Mac and the Xbox can be viewed as digital hubs, the iPod and Zune are the digital companions. If you don't already, you'll eventually use them as portable media centers to transport your music, movies, photos, files, games, and any other sort of digital content, from place to place and hub to hub.

As MSFT refines the Zune (and it will) and ties it into the Xbox via WiFi (and it will) the Zune is going to suddenly look a lot better. And more to the point, The Xbox Live Marketplace and Zune Marketplace are going to gain a lot more adopters.

I still think the iPod is the best portable media device out there, and the iTunes Store the best media store. But both largely depend on the other. Without the iPod, the Store would be just another place to buy media. And without the Store, the iPod would be just another player. The total package is the thing, and you cannot untangle the two.

But tie the Xbox to a more video-oriented Zune via WiFi (they already link via USB) and suddenly you have a new package that may be better than anything Apple has to offer. And while it isn't completely obvious yet at this point, MSFT is slightly ahead in the game. (Oh, and then there's Windows. Heard of it?)

The real iPod killer won't be a product, it will be a complete system.

Of course, we're just ahead of an Apple release cycle. An iPhone, or gaming system, or even a profoundly usable iTV will change the landscape entirely. But if Apple slips on January 9, or lets MSFT jump way out ahead, I'm gonna be down $100.



1. Ken wanted to bet a new iPod, since I already have five of those (plus iRivers, Creatives, and even some Thumps) the last thing I needed was another mp3 player. (In fact, Ken, if you read this, perhaps if you lose you might agree to take one off my hands.)

Eratta

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