Happy 10th Birthday iTunes – Can it Sustain Another 10 Years?

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A decade ago, the newly started iTunes Store gave away a song called Over My Head (Cable Car) by an obscure Denver rock group called The Fray.
That was, explains lead guitarist Joe King, the band’s big break. “I’ll never forget, our manager e-mailed and said there had been 300,000 downloads,” says King. “Immediately our fan base went from several hundred to thousands, everywhere. Our tour started selling out.” These days, iTunes doesn’t offer that kind of overnight success for undiscovered musicians, despite its 435 million registered users.

Apple (AAPL) opened the iTunes Store on April 28, 2003, as a legitimate, industry-supported alternative to online music piracy, selling most individual songs for 99¢ a pop. It was the first venue to make digital music purchases mainstream. “Consumers don’t want to be treated like criminals, and artists don’t want their valuable work stolen,” Apple co-founder Steve Jobs said in a statement at the time. “The iTunes Music Store offers a groundbreaking solution for both.” Paired with Apple’s ubiquitous iPod music players and, later, iPhones, it quickly became the Internet’s de facto record store, accounting for nearly 69 percent of digital U.S. music sales at its peak in 2010, according to estimates from market researcher NPD Group.

Today, iTunes’ share of the $2.9 billion U.S. digital music market has fallen to 63 percent, NPD says, its lowest since at least 2006. Many users, including those in the music business, complain that the site looks as outdated as the rare neighborhood record shop. “It’s a spreadsheet with music,” says Ben Easton, an artist relations manager for the New York City nightclub Joe’s Pub. The interface, with its signature top-10 lists and dropdowns, has grown stodgier with time and is a major handicap, says Ted Cohen, a recording industry consultant and the former digital chief for record label EMI Music. “There’s no emotion,” Cohen says. “There is nothing on iTunes’ store today that gives anyone the impetus to buy something.”

Ten years in, Apple’s music library has swelled from 200,000 songs to more than 26 million. Yet it no longer has a captive audience. Amazon.com (AMZN)’s cheaper digital music store has seized about 22 percent of U.S. music sales in the last several years. In a bigger threat to the song-purchase business model, Spotify, Rdio, and Rhapsody have signed up millions of subscribers for their music-streaming services, a feature iTunes doesn’t match. While 99¢ a song is cheap for listeners who regularly want new music, it can be much more expensive than the monthly fees at music-streaming services. “It’s no longer about individual tracks, it’s about access,” says Cohen. “The concept of buying music at 99¢ a song is becoming irrelevant.”Read More

 

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