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As iTunes revenues dip 14%, what next for Apple and the record industry?

By | Published on Monday 27 October 2014

Apple

As the shift from downloading to streaming escalates, the Wall Street Journal has cited insider knowledge that says music sales on the iTunes store worldwide are down around 14% this year, seemingly confirming the consensus that – iTunes music download sales having peaked in the US last year – that trend is now being matched around the world.

iTunes is so dominant in the download space, of course, that such significant slippage at the Apple store gives an indication of what is happening in the wider digital music market, ie that the high-consuming music fans who helped drive the iTunes boom in many territories are now shifting over to subscription-based streaming services.

Meanwhile younger consumers, many of whom likely tapped illegal music services in the past, but who might have been expected to grow up into legit downloaders, are more likely – if going legit – moving over to streaming services. Anecdotal evidence also suggests those consumers are opting for the free streaming set-ups, whether that be YouTube or the audio streaming platform’s freemium options. They may or may not subsequently mature into subscribers.

This poses different challenges for Apple and the music industry.

For Apple, despite iTunes originally being a means to an end to sell iPods and later iPhones, it creates a revenue gap in what had nevertheless become a very profitable content business. The IT giant needs to properly establish itself in the streaming domain of course. And iTunes’ first go at streaming – iTunes Radio – having had limited success, that’s now in the hands of Ian Rogers, who came to the firm via the Beats acquisition earlier this year.

He’s now got to work out a way of mashing the fledgling Beats Music fully on-demand streaming service with the iTunes userbase and the cheaper-to-run iTunes Radio to create a killer streaming offer ready to go fully live in 2015. It’s a tall order, though Rogers is very possibly the ideal man for the job.

For the record industry, it means an even trickier balancing act, capitalising on the boom in streaming whilst maintaining two declining revenue streams that are, nevertheless, still significantly bigger earners overall – ie CDs and downloads.

Whilst the peaking of iTunes-type income has been foreseeable for a while now, the labels are still learning to adapt to the streaming future, certainly in terms of album marketing, and in explaining how the much more complex ad and subscription revenue models work, to both staff and artists. Though, to be fair, most strategy chatter at the labels this year has been streaming focused, and these stats back up that approach to a point, providing everyone remembers that CD and download income is far from dead as yet.

Though it will be interesting to see how the peaking of download money impacts on overall record industry figures, fifteen years of decline having slowed significantly in recent years (Japan aside). Streaming money is booming, but is it booming enough to compensate for declines in both CD and download sales? While labels are right to focus on streaming to an extent, making those multi-revenue stream artist deals really work should also be a priority.



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