December 13th, 2006

NYT on iPod/iTunes sales - lies, damn lies, and statistics

Posted by Adrian Kingsley-Hughes @ 4:11 am

Categories: Apple, In the news

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The other day the New York Times published a short article which attempted to draw some conclusions about iPod and iTunes sales based on a report published by Forrester Research.  Instead of coming to any sensible conclusion, all the article did was highlight a total lack of statistical understanding at the NYT.

I'll save you having to read the article (even though it's only about 150 words long) by summarizing it for you:

67.4 million iPods sold as of Sept 06, 22 songs sold for every iPod sold, therefore iPods sales are not driving iTunes sales.

The flawed logic here is clear - 67.4 million iPods sold does not equate to 67.4 million iPods still in use.  Far from it.  Over the last four years a huge number of iPods will have been lost, stolen, damaged or just plain broken.  You could come to a similar flawed conclusion by looking at the numbers of cars sold since 2000 and the volume of gasoline sold.  You come up with a number, but it's a meaningless one.

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Another factor that the article failed to point out is that iPods are available in countries where the iTunes store is not available.  This is going to skew the numbers by a fair amount. 

In addition, the article fails to address the fact that one family or household might own more and one iPod yet share a single iTunes account. 

We must not forget too about the iPod user's existing music and media libraries too.  People will have music they've ripped that they can transfer onto the iPod.  MP3 players have been around for some time now.  I ripped my entire CD collection to hard disk back in 1999 (between Christmas and the New Year - I remember it well!) and while I've bought and ripped CDs since then, my music library hasn't grown significantly since then (on the other hand, my Audible.com library has grown about fifty-fold in that time).

Bottom line is that iTunes was meant to drive iPod sales, not the other way around.

I think that the Apple iPod/iTunes model is an interesting one.  While some people see through it and just see high-priced, DRMed, low-quality audio, others see it as a cheap, convenient way to buy the music they want.  In that respect, iTunes is a handy service for some iPod owners.  For those that regularly buy music from iTunes, they quickly hit a point where the value of the music library is greater than that of a new iPod and switching is not an option - Apple now has a customer for life.

The fact is that iTunes was never mean to supply all the music fodder that iPod owners wanted.  It's crazy to think like that.  Assuming that the average track is about 4MB, an 80GB iPod can hold 20,000 tracks, and at 99 cents each that means big bucks.  Even a 2GB nano can hold about $495 worth of tunes. 

[Updated: Dec 13, 2006 @ 10:15 am] There's some good analysis over on Blackfriars' Marketing which dispels the myth that iTunes sales are collapsing (thanks to Tic Swayback for the link!)

[Updated: Dec 13, 2006 @ 3:30 pm] Forrester Research is now trying to clarify this issue:

Now, you can't unring the bell. But I will try to focus you on the truth here, which is this: iTunes sales are leveling off, the Journal did an article about it last Friday with data from Soundscan. Apple is not in trouble — it makes its money mostly from iPods, and iTunes is just a way to make that experience better. It's the music industry that has to worry, since the $1 billion a year or so from iTunes, globally, doesn't nearly make up for even the drop in CD sales in the US, which are now down $2.5 billion from where they were.