iTunes Dominates Digital Music Market
June 21, 2013

iTunes Still Rules The Realm Of Digital Musical

Michael Harper for – Your Universe Online

New numbers from analyst Horace Dediu and Billboard show iTunes is still just as powerful as ever in the world of digital music, but their footing may be slipping a bit. As more music fans switch to other services like Spotify or Rdio, fewer people feel the need to actually buy individual albums or tracks. After all, if someone can pay less than they would for one album each month and listen to millions of songs, it’s hard to persuade them to return to the old model of owning digital tracks rather than renting them.

The average iTunes user now spends only $12 a year on digital tunes, down from $42 in 2008 and $20 in 2010. Yet, according to Horace Dediu with Asymco, iTunes still accounts for 75 percent of the market with customers dishing out about $6.9 billion for their digital media every year.

There are now 575 million users registered with iTunes, helping to drive the revenue up to $6.9 billion at an average of $12 a piece. According to Glenn Peoples with Billboard in Nashville, this $12-per-year figure makes sense, given the number of new users Apple has been able to sign up over the past several years. Yet while this number has likely shrunk due to an increase in iTunes accounts, Peoples also believes the average iTunes user in the real world is spending more than Dediu claims.

“The median annual music spend is probably higher than $12. If one assumes not every iTunes account has purchases music – a reasonable assumption – then some of the 575 million iTunes accounts represent no spending at all,” writes Peoples.

This math gets a little more complicated when multiple users sharing one iTunes account are considered.

With Apple holding down 75 percent of the market, other players like Rdio and Spotify are left to capture the remaining 25 percent.

Spotify has often been considered a major competitor to iTunes’ music business, earning a steady $120 a year from each of their 6 million subscribers. When looked at on the whole, it appears as if Spotify users are actually paying more annually – about $30 per head – than iTunes users.

DigitalMusicNews breaks these numbers down as well, bringing up a point similar to that made by Peoples in his Billboard blog: Not every Spotify account is active. According to their numbers, the average Spotify user is paying about $9 a year when inactive accounts aren’t considered.

In the end this data points to two findings. First, iTunes is still the dominant industry player, albeit one whose stranglehold on the market appears to be loosening. Secondly, this data could explain why Apple was so intent on launching iTunes Radio, which was announced at Apple’s WWDC Keynote event last week. Even if it does work more or less exactly like Pandora, the service is tied directly into the iTunes Store and is expected to make it easy for users to instantly buy a song they hear on the service.

With Spotify and others vying for the remaining 25 percent of the market, iTunes radio could bring in music-related revenue into iTunes as well as boost the number of active users. After the service launches this fall, it’s likely these numbers will look far different than they do now.