Monday, August 29, 2005

After dominating the online music service business for over two years, Apple's seminal iTunes Music Store service is about to face it's biggest challenge yet. Unexpectedly, that challenge is not coming from Microsoft or its partners, but rather from the music industry that provided Apple with the contracts it needed to offer digital music to consumers. Apparently, the music industry is tired of Apple's pricing schemes and they'd like to see consumers pay more for newer songs, and less for older songs. Apple is resisting, for now. But the outcome of this battle will likely determine how quickly digital music sales grow in the near future.

To date, Apple's success with iTunes seems astonishing: As of early this month, consumers have purchased over 500 million tracks from the service, and the recent launch of iTunes in Japan saw customers there purchase over 1 million tracks in just four days. The company commands 75 percent of digital music sales, and, thanks to its successful iPod franchise (21 million units sold so far), it owns 80 percent of the MP3 player market as well.

Impressed? As it turns out, those figures are just a drop in the bucket compared to audio CD sales and, interestingly, portable CD player sales, respectively. Total audio CD sales in 2004 were over 3.5 billion units (for comparison, most CDs include 5 to 10 tracks). And total portable audio CD player sales last year alone were approximately 19 million units, and they're expected to hit almost 18 million units sold in 2005.