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April 3, 2008, 8:05 am

Apple’s iTunes is briefly No. 1 in music

itunes-no-1.jpg

UPDATE: Apple on Thursday issued a press release declaring itself No.1. See here.

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It happened one week in January, according to a memo sent to Apple employees on Wednesday and intercepted by Ars Technica (link). The memo contained weekly data from a NPD Group Music Survey dated Jan. 8, 2008, and showed Apple’s (AAPL) iTunes store passing Wal-Mart (WMT) for the first time to become the No. 1 music retailer in the United States.

By Feb. 26, however, something must have changed, because that’s when Apple announced that it had passed Best Buy (BBY) to become, for the first time, America’s No. 2 music retailer.

What’s going on?

The most likely explanation is that the January results represent a blip in the data, a short-term peak caused by recipients of iTunes gift cards cashing in their Christmas presents. Music gift cards sold through Wal-Mart and Best Buy in December may also explain why Amazon (AMZN) dropped to No. 4 in the Jan. 8 survey.

But the long-term trends are clear, as sales of physical music continue to give way to digital downloads. The Ars Technica report cites other NPD data showing that 48 percent of U.S. teens — the primary engine of new music sales — didn’t buy a single CD in 2007, compared with 38 percent in 2006.

Despite growing competition from Amazon’s new digital music service, Apple’s position in the legal download market is still strong, given the iPod’s 70 percent share of MP3 player market and its tight integration with iTunes. Apple became the No. 3 music retailer in June 2007 when it passed Amazon, the No. 2 in February when it passed Best Buy, and it may yet overtake Wal-Mart for more than just that one week after Christmas.

Sounds like huge FUD on the authors behalf. Yes I am a proud Apple owner but here is what Apple has to say:

http://macdailynews.com/index.php/weblog/comments/16879/

Ken

ex ped: Apple’s press release was issued seven hours after my post. It’s been updated to reflect the news.

Posted By Ken Leonard, Belmont Shore, SoCal : April 3, 2008 4:32 pm

“Briefly?”

Phil, I questioned your headline of “Apple’s iTunes is ‘briefly’ no. 1 in music” because you are implying that iTunes made a surprising and likely only temporary jump to the top spot, whereas you and I and everyone know that iTunes will be the dominant provider in years to come. I don’t know anyone over the age of 30 that buys CDs anymore and even older generations like my parents have move away from discs. Wal-Mart has already failed in the online music distribution business, as has Amazon and Best Buy will not even enter the business because they know it is fruitless.

Posted By Peter, NY : April 3, 2008 3:13 pm

Lots of anger in some of these posts, but allow me to point out a few things:

The apple announcement of passing BB to become #2 was based on sales throughout all of 2007, but none from 2008.

Gift cards would be counted as revenue when they were sold (i.e. December most likely) and not when they are cashed in.

These are the first numbers I’ve seen regarding 2008 sales (I assume it takes NPD a while to compile their stats). If you’ve seen other numbers please let us know, but the ones reported in February were for 2007 so they don’t factor in.

I expect to see something from NPD about 1Q2008 in May.

Posted By Alan, Reston, VA : April 3, 2008 2:22 pm

Hey anti-PED people. Lay off the guy! At least he gets PAID to write these articles. You people are taking valuable time from work to write your sad little blah blah’s. Oh wait, I’m taking time from my office to write this to you dolt’s. BACK TO WORK.

Posted By David, Cleveland Ohio : April 3, 2008 1:15 pm

Let’s not pick on PED for this one. It was a fair article for a change, with good information. Save your vitriol for when he deserves it!

Posted By Patrick J. Naples, Fl. : April 3, 2008 12:23 pm

Well, I guess Phil is paying is karma, people are so used to his biased articles they can no longer read an article from him without a balancing bias themselves. The end result is that, when Phil launches an unbiased article, they attack him for being biased.

For some reason, Phil is writing more and more articles that are unbiased, solid and simply correct.

Apple is ‘doomed’ to become number 1 reseller of music, it’s just an extrapolation of a solid progression, there’s nothing to it. Why would people want to carry around a couple of silvery discs when they can carry around 1000s of weightless and spaceless files in an tiny piece of equipment with hi-fi sound? That does video too.

Phil, keep taking your medicine and behaving well, your articles have improved a lot lately :D

Posted By XamaX, Lisboa, Portugal : April 3, 2008 12:02 pm

For what seems to be a smaller and smaller grouping of people who want to sit and really listen to high quality music, this is all a sad state of affairs.

Sure walking down the street or on a plane with the little earbuds in your ear it is a marvel of technology with acceptable sound quality, and there is no better way to carry around thousands of your favorite tunes wherever you go.

But I’ve plugged an iPod into my $8,000 audio system with the settings and downloads at the highest quality and it is sounds OK, but certainly on a quality scale of 1-10, it earns only a 7, and I am being generous. The sound is not even close to what the original CD on a good CD player sounds like. I laugh when I see the $50+ “Audiophile” cables you can buy for an iPod. Audiophile and iPod in the same sentence is about as good an oxymoron as there is.

I will continue to buy 80% of my music on CD and then I will upload those tunes I want onto the iPod. This way I have the best of both worlds.

Don’t get my wrong, the iPod is a great little device that delivers something that could be done in places and in ways that nothing else can do. But an iPod is not really about making great music.

This article points out that music is now all about convenience. For the too many that agree, I can only assume that you now avoid going to museums to look at the great works of art, and instead look at them on your computer monitor. It’s the same thing right?

Posted By Stan Hampton, Chicago, IL : April 3, 2008 12:01 pm

When and how did product “fandom” become so rampant and obnoxious? Seems like there are avid defenders/proselytizers for just about any major CE companies–Microsoft, Sony, Toshiba, Apple. It’s kind of odd, given that we are CONSUMERS and not ADVOCATES. Why do these people vest so much emotional energy into defending their choice of purchase? It’s really weird and fascinating. Guess this is a cult of personality for our consumerist society.

Posted By Toki, New York, NY : April 3, 2008 11:56 am

Correction: I should have said “…(a time during which APPLE wasn’t even always #2).”

Posted By Alechemist, Chapel Hill, NC : April 3, 2008 11:48 am

Let me try to help PED explain the term “briefly” to those posters who think this overwhelmingly positive article was slamming Apple.

Wal-Mart has been the #1 music retailer for years. Let’s just say 3 years (156 weeks) for fun. For a MAXIMUM of seven weeks (8 Jan through 28 Feb) iTunes was the #1 retailer. Then Wal-Mart returned to the lead it had had over the past three years (a time during which it wasn’t even always #2). So, out of 156 weeks total Wal-Mart was #1 for 149 weeks and Apple was #1 for (no greater than) 7 weeks. Seems brief to me.

In case you still don’t get it…if music retailing was NASCAR Wal-Mart led for 149 laps (including the last one) and Apple led for 7 laps and wasn’t #1 at the end of the race. I can’t think of a way to simplify the concept more than that. And boy do I dislike NASCAR.

Posted By Alechemist, Chapel Hill, NC : April 3, 2008 11:46 am

AAPL and it’s iTunes service, especially, has been growing by leaps and bounds considering how long they have been in the music business, mp3 player business, and even electronis component accessories (but of course no mention of that either)

Why don’t you do a piece on how well the Apple Store is faring against their competitors like BestBuy, CircuitCity, Newegg.com, and TechDevils.com ?

Posted By DJ Duff, Dallas, TX : April 3, 2008 11:11 am

This article closes by implying that iTunes is destined to become the #1 music seller throughout the year, so how is this bashing on Apple? All they did was explain the short-term conditions that caused changes in the rankings in Jan and Feb while recognizing the obvious secular trend towards digital sales.

I was honestly surprised by the stat saying 48% of teens didn’t buy a single CD last year.

You have to wonder… though LP sales are still relatively small, they are on the uptrend and they offer a tangible experience you don’t get from digital or CD music. Perhaps in another 10 years, LP sales will retake their lead over CDs.

Posted By Jason, Louisville KY : April 3, 2008 11:08 am

Are you going to make sugar water for the rest of your life? What a waste…

Posted By Don Lehman Boise Idaho : April 3, 2008 11:07 am

Dear Mr. Bias,

it seems that you suffer from a condition called “iSAAS” (inSufficient Adulation for Apple Syndrom) that plagues increasing number of people in the world. The condition manifests itssel when those suffering from it attack anybody who writes anytning which is (i) not extatic about Apple or (ii) even remotely possible about real or potential comptitirs that may threaten the domination of Apple.

There is no cure for this condition, except that perhaps to continue saying to yourself the following as a mantra:

“Apple is a dominant capitalist corporation that is at least as powerful and pushy as Microsoft and (here is the difficult part for the condition-sufferers) Apple does not need my material support anymore as it is not an underdog”.

If you say this mantra anytime you see anything about the object of your worship, your condition may be alleviated.

Posted By Asher Pat, London : April 3, 2008 10:54 am

“Briefly?” “BRIEFLY????”
Buddy get a clue. FYI when Apple started taking over Target, Best Buy, and Amazon for music sales, they were “briefly” tracked above competitors before it was finally disclosed that they firmly outsold competitors. Are you seriously contending that Apple’s position as the number one music retailer will be “brief”, as if suddenly Wal-Mart will start on online music service to retain superiority? Oh wait. Wal-Mart already tried that and failed. So I guess Phil, you are trying to say that Wal-Mart will continue the dominance with their current music sales model which is about as successful as selling a bag of glass shards as a children’s toy?

Phil, you are a fool but I can’t fault you for that. However I surely can blame the morons at Fortune for publishing your nonsense. Blame I do and the fitting punishment is simply to cancel my Fortune subscription.

ex ped: Huh? “Briefly” because by February iTunes was back to No. 2, behind Wal-Mart.

Posted By Peter, NY : April 3, 2008 10:43 am

I Guess you fail to realize that the gift card money still goes to Apple not WALMART….. look before you leap

Posted By Leo columbus,GA : April 3, 2008 10:39 am

Exactly. Give honour where honour is due.

AAPL revolutionized the music industry. Now they are one (if not the one) of the top sellers.

Whether you own their stock or not, you gotta give them credit.

Posted By vanmac, Ontario Canada : April 3, 2008 10:30 am

Do the writers of Fortune dislike Apple for some reason. I see more negative slanted articles coming from here than almost anywhere else. (MS pundits excluded. )

Lets look at the numbers in April and see if you are right or wrong. If you are wrong, will you say anything positive or just wrap an article in more FUD.

Apple makes mistakes like anyone but if you look at their solid direction over the last 2-3 years, I do not think anyone can argue what is happening.

Just a thought.

EN

Posted By Elder Norm, Palestine, Texas : April 3, 2008 10:18 am

Warning previous post from an Apple fanboy.

Posted By Bill Stickland, New Brunswick, NJ : April 3, 2008 10:10 am

Did AAPL run over your dog when you were a kid? No matter how positive a data point, you make sure to drop FUD all around it. Every piece of info has at least two dark and dangerous attachments.

They are in a strong position in online music sales(duh) BUT…Amazon and growing competition! BUT…iTunes must still catch Walmart!(even though they arent in the same game)

They hit number 1 in music retail BUT…its just a short lived blip! Also, it was really Walmart and Best Buy doing all the REAL sales (gift cards).

Posted By Sickof Bias, Dayton, Ohio : April 3, 2008 8:39 am
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Philip Elmer-DeWittSilicon Valley veterans like to joke that Steve Jobs must be surrounded by a reality distortion field; if you get too close to him, you start to believe what he's saying. Thanks to the success of the iPod, the launch of the iPhone and the renewed interest in the Mac, Apple has made believers out of millions of customers - and made a lot of investors rich. But Philip Elmer-DeWitt believes that an ounce of skepticism never hurts when writing about the company. He should know. He's been covering Apple - and watching Steve Jobs operate - since 1982, first for Time Magazine, then for Business 2.0, and now for Fortune.
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