Are Slipping iPod Sales Bad News for the Recording Industry?

Over at PaidContent they're making a bit of noise about some thinking by analyst Mark Mulligan that says a slip in rising iPod sales is bad news for the record industry. It's an interesting idea, but basically misses the point.

iPod Sales

The fuss is over Mulligan's data on iPod sales versus installed iPod user-base versus time. It rather fabulously shows how the iPod sales figures exploded after the ground-breaking device was released in late 2001. In 2005 the graphs for installed base and sales really began to split--Apple released new iPod versions during that time, which people continued to buy, but many users kept hold of the older ones (of course) until they were either hopelessly outdated or wore out. The user upgrade cycle seems to be about two years, according to Mulligan.

So far, so unexciting. The iPod has been ridiculously successful, capturing 73.8% of the MP3 player market (by Apple's figures, revealed yesterday), and Mulligan acknowledges it's good news for Apple--"this is what device sales are all about." But PaidContent has jumped on Mulligan's grim conclusion for the recording industry: "the key dynamic in digital music sales is changing direction. The number of new potential customers arriving in the marketplace is slowing." Mulligan's conclusion targets the companies that rely on Apple, and argues that digital music sales will echo the slowing growth in iPod sales and eventually plateau, forcing the music industry to find new revenue-generating paths.

And that's where this thinking all falls down a bit. Because the slowing iPod sales are simply a reflection of the same growth curve every revolutionary type of device goes through (Google for "product adoption curve" and you'll see). Successful new gizmos arrive, typically simmer quietly for a while, then experience explosive growth until they occupy significant market space--everyone knows about them, everybody has one...so then the rate of sales growth declines. That's because the market is of a finite size: There are only a limited number of people joining the digital market place because there are only a limited number of people. And new customers are still arriving anyway--just at a reducing rate.

Then there's the smartphone issue--stirred up most dramatically by Apple itself. As smartphones get smarter, more powerful and more multifunctional, then they'll act as both digital cameras and MP3 players too...which will ultimately cannibalize the MP3 player market. So slipping iPod sales are mirrored by soaring iPhone (and other smartphone and music phone) sales--devices which are still a vehicle for people to access digital music. And there're also the people who happily download tracks from iTunes or Amazon or elsewhere, and never take them beyond the confines of their PC or home theatre PC setup--they won't show up in the iPod sales figures at all.

So of course, the number of new people arriving into the digital music marketplace is going to slow down--how could it not? And basing this bad-news analysis on iPod sales alone is missing some of the key industry drivers. Just as the recording industry had to embrace declining vinyl sales as the CD arrived, and declining CD sales as the MP3 arrived, it'll have to innovate to keep the MP3 revenues up. There's no surprise, or particularly doomy message, here at all.

[The Guardian via PaidContent]

Add New Comment

0 Comments