The impact of decline in iPod sales

September 09, 2009 07:16 pm | Updated December 04, 2021 11:46 pm IST

Making less music? The Apple iPod does not enjoy the same growth rate in sales anymore.  Photo: K. Murali Kumar

Making less music? The Apple iPod does not enjoy the same growth rate in sales anymore. Photo: K. Murali Kumar

This month, Apple released an upgrade to its iPod line. But amid the hype surrounding its careful marketing and intentional secrecy about the content of the launch, a different truth is emerging: that we are seeing the twilight of the stand-alone digital music player (DMP), a product category only just over 10 years old.

That does not mean that digital music players will vanish. Quite the opposite: the sector is still growing. Increasingly, though, the products have some sort of connectivity - whether Wi-Fi, mobile phone, Bluetooth or all three.

But if you look closely, the signs that the stand-alone player is in decline are all around. The first, and most obvious, was Apple's announcement in its latest quarterly results that iPod sales fell year-on-year for the first time since the product's launch in October 2001.

As the iPod dominates the market for DMPs, any drop in its sales indicates a fall in the market.

Next is the news that in the last week of August, Sony's Walkman DMPs outsold the iPod in Japan for the first time in four years (http://bit.ly/digitalmusic). But that was against a background where sales of DMPs fell by 13.5% for the fifth month in a row; and Sony forecast that it would sell 6.7m units in the year to March 2010 - compared to 7m sold the previous year. The conclusion? The market for those DMPs is falling. By contrast, in July the launch of the new iPhone 3GS at the same time the iPhone was the most popular phone in Japan (http://bit.ly/digitalmusic2).

Then there is Microsoft's decision to drop older versions of its Zune music player, which despite having Wi-Fi connectivity has failed to make an impact on the North American market, the only place it is sold. The Zune has been close to an embarrassment to Microsoft, losing money and never living up to expectations.

And finally, there is the forecast by In-Stat (in-stat.com), a consumer-analysis company, which suggests that the market for stand-alone DMPs peaked in value last year at $21.8bn and "will slow considerably over the next five years". It reckons that the market's growth fell below 10% at the end of 2008 for the first time since the Saehan "MPMan" player, able to store 32MB of data, went on sale in 1998. Soon after Diamond Multimedia started selling the Rio PMP300.

That in turn carries serious risks for the music industry, which has surfed along on the iPod boom, warns Mark Mulligan, vice-president of the global media practice at the analysis company Forrester Research. Digital music downloads have been driven by DMP sales growth. But what happens when that growth slows? Logically, digital music sales slow down too.

"There's a really, really important point that we have been trying to hammer home to the record labels for some months, which is: what happens to music sales as device sales start to slow? Apple is 75%-80% of the music download market. Its fortunes are explicitly tied to iPod sales. And even before the last quarter, if you do a simple calculation - assuming a two-year replacement cycle for each iPod, and calculate the installed base - then you discover that the installed base of iPods stopped growing in 2007." Mulligan puts the total installed base at roughly 110m at the end of 2008.

He explains that 2005 was the "liftoff" year for iPod sales, and for the installed base to grow beyond that would require a "massive" sales surge - which is not happening. Instead, people are turning to the iPod Touch and iPhone.

But the music industry has had a troubled relationship with DMPs. In 1998 the first reaction of the Recording Industry Association of America (RIAA), representing US record labels, to the Rio was to sue Diamond Multimedia because it could be used to play illicit copies of music. The next was to ignore it: in 1998 Nick Raymonde, then the A&R director at BMG Music, one of the biggest music companies, said in an interview that MP3 "is not a particularly good format technically" and "I don't really see a lot of kids walking around with MP3 players yet". He's probably seeing it now.

The iPod's arrival, with its click-wheel access to huge numbers of songs, galvanised the market. By July 2006, a study by Digital Life America and Canada-based Fast Forward found 28% of Americans aged 12 and over had a DMP - with sales growing fastest among women. The iPod had a 68% US market share, up from 53% in 2005, with Creative Labs a distant second with 6%.

But now that market has matured - or become saturated. It is no longer enough simply to play music. Connectivity is now the key.

According to Stephanie Ethier, a consumer devices analyst at In-Stat, the slowdown in the stand-alone market is caused by "market maturity, a weak economy and competition from other multimedia handhelds". She believes the total market for personal media players (a category that includes Wi-Fi-enabled devices such as the iPod Touch and Sony's new X-series Walkman) will grow from 200m in 2007 to 245m in 2012 - but of that, 21%, or 52m, will have Wi-Fi. That means 193m sold without, a fall compared to

2007. And the value of those 193m will be below that in 2007, as storage gets cheaper and the market commoditises.

Apple, again, clearly recognised that with its launch in September 2007 of the iPod Touch. Since its launch, the iPod Touch has sold 18.6m units worldwide - compared to 26.4m units of the iPhone, launched three months earlier.

That connectivity though means that the complexities of the device – and the need for good user interface design - are suddenly much higher. Wi-Fi means email and web browsing become possible, if not obligatory, and the idea that you might be able to do even more with the device - as the iPhone and iPod Touch have demonstrated through Apple's online App Store, selling 65,000 different applications - raises the bar for those in the market. As Michael Gartenberg, a consumer analyst at the research company Interpret,

says: "Let's face it. app stores are table stakes for mobile platforms today. If you don't have one, you're not even in the game." It's easier for mobile phone companies to consider building an app store, because they know how their handsets work. But they have the challenge of working out how to make any revenue from them, and designing them so that people want to use them to download applications.

But Mulligan warns that for the record industry, this brings all sorts of dangers which won't help sell more songs. "The iPhone, iPod Touch, devices like that, are basically vanilla products where the owner adds apps to customise it." Then they can use it for navigation and games, not necessarily songs. Hence the necessity for the record industry to push schemes such as Nokia's Comes With Music, where handset buyers get free music for a year.

"I don't think Comes With Music would have been licensed three years ago," says Mulligan. "But the record labels understand that [digital sales to iPods] isn't enough. There's no hockey-stick upturn in digital

downloads. They're pretty much having to go with anything that the market comes to them with - Spotify, whatever."

The product rumoured before Wednesday was the "iTablet" - a tablet computer being developed by Apple with record labels. "I've learnt never to second-guess Apple," Mulligan says. "But if you had things like interviews and apps and music on a touchscreen netbook - that would be an ideal format. That's just what the music industry needs."

With the iPod - increasingly key to Apple's growth - now glimpsing its end, there will be pressure on Apple too to revitalise its offerings. But will Wednesday night's launches have been enough?

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