50 millionth song marks a milestone for iTunes
41 minutes ago
By Jon Fortt, Mercury News
Apple Computer's iTunes Music Store has notched its 50 millionth song that customers paid to download from the Internet, opening distance between the company and its online music competitors.
Monday's announcement underscores a truth about today's paid music download market: Apple still rules. But the company said its iPod audio player is still the real moneymaker in its music strategy.
That's because, while Apple makes a thin profit percentage from 99-cent song sales, it gets a healthier boost selling iPods, which start at $249.
In the online music marketplace, iTunes store's closest competitor, Napster (news - web sites), has sold only about 5 million downloads -- though that does not include Napster's streaming music subscription service. And Apple's 50 million-song tally does not include songs Pepsi and Apple are giving away in their promotion together. Customers are now downloading at a rate of 2.5 million songs a week, or about 130 million a year.
Apple has about 70 percent of the market in paid song downloads, according to Nielsen SoundScan. Rob Schoeben, Apple vice president of applications marketing, said he thinks Apple is doing even better at album downloads. "We actually think that we're around 90 percent market share on albums," he said.
The numbers are big for online downloads, but they're peanuts for the recording industry at large. These days the recording industry sells about 750 million CDs each year according to the latest industry numbers, with multiple songs on each CD.
Even considering its early success in convincing people that an online download store can work, Apple faces challenges.
That's because for Apple, digital music downloads aren't an end in themselves -- they are a means to selling more iPods. Schoeben characterized the company's approach as "iTunes plus iPod." The idea, Schoeben said, is that once people download songs from iTunes, they'll crave an iPod to carry the tunes around, because "you can burn CDs, but who wants to use a CD player these days?"
In the coming months, Apple will begin to unfurl its strategy of making a little less profit on the average iPod, but selling a lot more of them. A Hewlett-Packard branded version of the iPod is due in a few weeks, and HP will pocket some of the profit from that version. The new iPod mini will bring Apple less profit per sale than previous iPod models, because its parts make up a larger portion of its $249 price tag.
Success for Apple will mean selling so many of the music players that the slimmer profits don't matter, and paying lower prices for the iPod's building blocks. Apple will begin to show success or failure in the spring.
So far, Apple has struggled to make enough iPod minis to meet demand, though that is common for a new product. And as for wrangling lower prices out of its parts suppliers -- Richard Doherty, director of research for Envisioneering Group, doesn't think that will be a problem for Apple's chief executive.
"There's the laws of economics and there's the laws of Steve Jobs (news - web sites) negotiation," Doherty said. "He has been known to get components at cost, or sometimes below cost."
Contact Jon Fortt at jfortt@mercurynews.com or (408) 278-3489.
