Digital Audio Insider -- the economics of music and other digital content

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Digital Audio Insider is David Harrell's blog about the economics of music and other digital content. I write from the perspective of a musican who has self-released four albums with the indie rock band the Layaways.

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April 23, 2008

Not So Fast
by David Harrell mp3 banner

Today's WSJ article on's digital business, Slow Slog for Amazon's Digital Media, seems a bit pessimistic, at least in regard to Amazon's mp3 store. I have no reason to disagree with the numbers cited in the piece -- according to one analyst, Amazon has invested some $300 million in its digital media efforts, resulting in annual sales of less than $100 million.

But damning the mp3 store for producing sales that are approximately 10% of those of the iTunes store -- the figure from the recent NPD report -- seems premature. As far as I know, neither store releases monthly digital music sales data, so it's hard to arrive at any exact figures. (Which begs the question, where is NPD getting that 10% number from -- its consumer surveys?) Peter Kafka at Silicon Alley Insider tried to come up with an estimate for mp3 sales and arrived at an initial figure of 100 million tracks, but he was stymied by the fact that the 10% refers only to U.S. sales, and Apple doesn't provide a breakdown of US. vs. non-U.S. iTunes sales.

However, according to Apple's most recent 10Q report, approximately 44.4% of its total sales for the quarter ending 12-29-07 came from the U.S. Assuming a similar percentage breakdown for the portion of sales coming from iTunes, it translates into 44 million tracks for mp3. I have no idea if that number is even in the ballpark, but consider this: After launching in April 2003, it took more than seven months for the iTunes store to sell 25 million tracks. (Update: Oops -- just realized the 44.4% figure from the 10Q refers to the Americas, not just the U.S. So that 44 million track estimate is on the high side. Though it's probably safe to assume that the majority of Apple's sales in "the Americas" are coming from the U.S.)

The mp3 store launched in September 2007 and is technically still in beta. And I'd argue that a fair amount of digital music consumers aren't even aware of the store yet. Here's one anecdotal example: This morning, a music-loving co-worker said his usual m.o. for purchasing digital music is to check first in iTunes. If the album in question isn't available (he likes some relatively obscure music), he'll head to eBay and try to buy a used CD on the cheap and rip it to mp3. He's a savvy online guy and a huge music fan, but he was quite surprised when I told him that was now selling mp3s...


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