Thursday, December 07, 2006

The iTunes Store's Horrible Sales Secret

I have been surprised over the past few years as many data points have been publicized making it obvious that the current state of DRM-protected music download stores is not in sync with the marketplace's desires. My surprise comes from how quiet the world's media is in discussing this reality, and in how easily the music player makers and the recording industry ignore the reality facing them. You see, most people simply do not buy these copy protected legal downloads.

DRM Doesn’t Matter

According to data collected by Jupiter Research, Gartner, and others, the emphasis today's MP3 player manufacturers are placing on DRM scheme compatibility is ill-founded. It seems that very few of today's customers actually ever use an online music store, and they own very few DRM encoded music tracks. Most people rip CDs, or swap files using P2P services.

What About iPod Users?

According to Jupiter Research, about 83% of iPod users do not buy songs from the iTunes store regularly, and are likely to own fewer than 20 tracks wrapped in Apple's Fairplay DRM scheme. It seems that the other 17% of iPod users buy all of the songs being sold by the iTunes Store.

When considering users of Windows based MP3 players, the situation is even more extreme. A recent Gartner study reveals that over 70% of these people have never bought a song from a DRM wrapped online source. And, over 90% fall into the "tried it once or twice and didn't like it" category. The bottom line here is that fewer than 5% of Win based MP3 player owners regularly purchase songs from an online music store.

Summarizing The DRM Scene

Basically, all of the tracks being sold by iTunes and the myriad of Windows based online services are being bought by 20% of iPod owners and 5% of Win based player owners. The important corollary is that today's DRM wrapped music stores are being roundly ignored by 80% of iPod users and 95% of Win based player users.

New Light On This Old Problem

Now, SoundScan is noting that online music sales have basically flattened over the past year, stuck in the 100 to 140 million tracks per quarter range, and showing no sign of striking any steep upward trajectory. Simple math says that, on average, this means that about each MP3 player owner (all makes and models) is buying one download track every three months. Folks, that is not a very impressive sales pace. And, it surely does not describe the sort of "Future Of The Music World" scenario that Apple (and others) would want everyone to believe is coming. Instead, those sorts of numbers clearly describe a failed system.

The Present System Is Broken

Today's DRM-wrapped music download stores, both click-to-buy and subscription varieties are abject market failures. And, all of the vested purveyors are staying mum on the topic, quietly allowing the myth to perpetuate that the approach is actually a fast-growing success story. It ain't true, people.

People are clearly rejecting the concept of paying for digital music files that are layered in swaths of restrictive DRM. Other than a tiny hard-core slice of upper-income buyers, the vast majority of MP3 player owners simply avoid these online stores, including Apple's vaunted iTunes store. And, from the latest market intel, it's evident that even these affluent buyers are slowing down their purchasing.

What Is The Fix?

While DRM-wrapped online song sales are failing as a business model, the traffic in both paid and unpaid non-DRM song files continues to flourish. Yahoo continues its successful experiment in selling non-DRM MP3 music, an effort I mentioned here a few weeks ago. Michael Robertson's site is showing steady sales growth. And, of course, the P2P networks continue to buzz with downloading activity.

While Apple nor the rest of the industry want to publicly discuss their sales numbers and trends, or admit the failed business model now being promoted, the reality is there for anyone who wants to look: The present approach to using DRM to lock out consumers from Fair Use rights is not working. It is a failed system.

One heroic major company needs to stand up, admit this reality, and offer the buying public a major song download option with 1 million plus standard MP3 tracks... including hot, current tracks from major artists, and major catalog selections. A line of edgy new players that completely shunned all DRM formats would also help make the point. Such a store, and such a line of players would show blow-out sales numbers.

The bottom line is this: The vast majority of buyers do not like DRM, do not buy DRM music, and have no interest in players that support DRM music. Somebody with a brain at a major company should note these facts and weave a new business model to replace the obviously failed one now being applied by others.


Blogger me said...

Why would it matter if the files had DRM or not? Isn't the real issue paying for music? Why do you think buyers would flock to an online venue with non-DRM tracks?

9:17 AM, December 18, 2006  

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