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12/13/2006
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Research Firm Clarifies: iTunes Sales Are Not Collapsing

Reporters misunderstood data released in a recent market report, Forrester Research says.

Media reports of plummeting sales on Apple Computer's iTunes music store are untrue and based on a misinterpretation of data released in a recent market report, the research firm that published the study says.

Forrester Research on Wednesday tried to set the record straight after some media companies reported that its study on iTunes showed that song sales fell 65% during the first six months of the year. "For the record, iTunes sales are not collapsing," Josh Bernoff, analyst and author of the report, said in his blog.

While an analysis of credit card transaction data showed a real drop between January and the rest of the year, the number of purchases counted was too few to draw the conclusion that sales were plummeting. "That point was just too subtle to get into these articles," Bernoff said.

The media reports, which started surfacing a couple of days ago, coincided with a 3% drop in Apple's stock and led to a "clearly upset" Apple calling Forrester, Bernoff said.

What Forrester's research did show is a leveling off of iTunes sales, which has been running about 20 songs per iPod since the digital music players went on sale. The number has gone up lately to 23, Bernoff said.

In addition, the median transaction is just $2.97, with a third of all purchases amounting to one song. The top 34% of iTunes customers account for 80% of all purchases, Forrester said.

Apple isn't in trouble because its money in the digital music business comes mostly from iPods. ITunes is meant as a complement to the player, Forrester said.

Instead, Apple's leveling off at about $1 billion a year in worldwide sales on iTunes is an indication that even at 99 cents a track, most consumers still aren't sold on the value of digital music, Bernoff said. Also, iTunes's annual sales don't nearly make up for the drop in CD sales in the U.S. alone, which is down $2.5 billion.

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