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Disaggregation 2: iTunes and CDs

December 13, 2006

Following on from my post on disaggregation and the publishing industry, I thought I'd look at online music shopping; whether consumers prefer to purchase unbundled songs or a bundled CD product. A report from Forrester this month, Few iPod Owners Are Big iTunes Buyers looks at the number of iTunes tracks sold per iPod shipped, with the key takeaway that "digital music is a tough market - even for the clear leader" (capitalisation removed).

Hitwise data in the Australian market certainly indicates a competitive market for online music shopping. While Apple iTunes is currently the market leader with 9.39% market share, week ending 9 December 2006, Sanity Music, which primarily sells music and movies on its website for offline shipping, trailed closely with 8.73% share. Note that this chart does not reflect the number of music downloads, rather share of visits to websites featured.

disaggregation2.png

Competitors that have a similar distribution model to Sanity, namely CD Universe and JB Hi Fi Online also enjoyed strong growth rates in website visits from December 2005 to December 2006, while iTunes overall growth rate was predominantly in the period 2004-2005.

The point to note here is that visits to CD vendors online do not seem to be diminishing with the presence of Apple iTunes. It appears there was an initial negative effect on the market share of Sanity with the rise of iTunes, but that appears to be reversed now with Sanity quickly catching up prior to Christmas 2006. It appears that bundled product, ie CDs remain viable for online distribution in the context of disaggregation. Retailers will need to consider when and how disaggregation applies to their specific vertical. I imagine online books retail might be a similar scenario to music, where some players might excel in digitalised books, and others in traditional offline shipping.

Posted by Sandra Hanchard at 06:47 PM | (0) | (0)
In Categories Music

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