Analysts: Apple's iTunes Music Sales Plummeting

AMSTERDAM – Sales at Apple's (AAPL) online music shop iTunes Music Store fell off a cliff in the first six months of 2006, according to a recent survey.

Since January 2006, the number of monthly iTunes transactions has declined 58 percent, while the average size per purchase declined by 17 percent, leading to a 65-percent overall drop in monthly iTunes revenue, U.S. market research group Forrester said in a survey among North American consumers.

"It is too soon to tell if this decline was seasonal or if buyers were reaching their saturation level for digital music," Forrester said in the report, which was published to its clients last week and made available to Reuters on Wednesday.

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Apple's iTunes Music Store is the most popular online music store in the world and Apple said it has sold over 1.5 billion music tracks and tens of millions of TV shows and movies.

The decline comes after a period of strong growth. The number of monthly iTunes transactions grew sevenfold, from just over two transactions per 1,000 households in April 2004, to nearly 17 during January 2006. Over that period, the average transaction size almost doubled, to $6.69 from $3.55.

Forrester analyzed 2,791 US iTunes debit and credit card purchases made between April 2004 and June 2006 from the research firm's consumer panel.

Most consumers buy just a few songs at a time, while the average is boosted by a smaller number of heavy buyers.

"Only Apple knows just how much profit there is at the end of the day on a $1.98 credit card transaction for two songs, but with transaction costs, hosting costs, and the wholesale price of the songs, there's not much margin left," Forrester said.

Of all online homes, only 3 percent buy music at Apple's music store, and of those most continue to buy most of their music on compact discs (CDs).

"Although Apple is the dominant leader in the digital music industry, the entire category of digital music made up just 4 percent of U.S. music sales in 2005," Forrester said.