Apple’s iPod report causes controversy

A research produced by Forrester was the source of a New York Times news story that made the headlines and causing Apple’s Market capitalisation to drop by about USD 2Bn. On Tuesday the 12th, Apple’s share prices dropped from around 3%, causing Apple’s market capitalisation to drop below USD 75Bn.

But the Forrester report itself provides with some very interesting insights of the online music industry. Apple itself has been very secretive about exact sales figures ,which make this report even more enticing.

The USD 299 Forrester research entitled “Few iPod Owners are Big iTunes Buyers” analysed 2700 US-based iTunes debit and credit card transactions and found out that 3% of online households bought iTunes in the past year. A majority of those actually bought iTunes on three or fewer occasions and spent less that $20 last year.

Forrester conclusions were that

(1) iTunes revenue is largely dominated by small transactions

(2) 34% of iTunes users actually account for 80% of iTunes revenues last year.

(3) The average user buys 20 songs per iPod – that’s only $19.98 per iPod.

(4) Apple makes most of its money out of iPod players rather than on songs. This is in stark contrast to the video game console market for example.

Apple reached the one billionth song landmark on the 23rd February 2006 and added a further 500 million within six months. iTunes is expected to deliver its two billionth song in March 2007, therefore raking USD 1 billion in revenues without factoring in video downloads.

Forrester’s report however highlights a very important aspect, the fact that half of transactions cost less than USD 3.00, which hampers iTunes’ ability to be a profit maker for Apple.

As for the report conclusion, it highlights the fact that all is not rosy for the music industry as a whole and particularly for the non-digital segment. CD sales in the USD have dropped down by USD 2.5Bn and piracy or iTunes cannot be the only causes of that.