iTunes more popular than P2P services

Port Washington (NY) - According to an analyst report released this morning, iTunes - Apple Computer’s music download service - surpassed all but one non-commercial peer-to-peer (P2P) file-sharing service, with regard to the total number of songs downloaded in March 2005.

In a press release, Russ Crupnick, president of the Music and Movies division of analyst firm NPD Group, stated that in his opinion, commercial song download services "appear to have created a compelling and economically viable alternative to illegal file sharing."

The Group’s conclusions were reached through a poll of 40,000 US Windows PC households, projecting that 1.7 million households worldwide downloaded at least one song from iTunes during March 2005, whereas 2.1 million households downloaded at least one song from the non-commercial P2P service WinMX. Still, this places iTunes second among major digital music providers, just ahead of LimeWire, another P2P service.

"There was always a question, with the legal [licensed pay-per-download] services, as to how they could compete with free," states Isaac Josephson, an analyst with NPD Group. "In the financial community, there might have been some concern that it would be difficult. I think this is an indication that there’s more to digital music than ’free.’ It is proof positive that [for] things like selection, convenience, and quality, people will seek them out, and people will pay a premium for them."

A similar survey of 4,000 households conducted at this time last year by Parks Associates corroborates this trend, states John Barrett, a Parks Associates analyst. "Just about everybody’s first taste of music-on-demand was through an illegal file sharing service," said Barrett. It’s an achievement in itself, continued Barrett, that millions of customers could be convinced to pay after having received the same or similar product for free. However, he said, "there’s still several advantages that the peer-to-peer networks have over a legal service," one of which being the trafficking in files such as sessions recordings and bootleg songs, that were never meant for release to the general public.

The NPD Group report did not mention that, of the top ten services listed, only iTunes and RealPlayer Store (#9) were not either P2P file sharing systems or services which connect to multiple systems. Josephson confirmed that a combined total for the eight P2P services would dwarf the total for licensed download services. "There are more peer-to-peer services out there," said Josephson, "than there are legal services, simply by virtue of the fact that peer-to-peer services have been around longer." However, contends Josephson, if there were more legal paid download services, there would in turn be more users of these services in the market. He cited "the rising-tide-lifts-all-boats phenomenon - when one big service comes on the scene, and there’s a lot of hype, promotion, and usage, that generally raises the awareness level of the whole market, and it has a halo effect on the other services."

What Barrett called "Apple’s stroke of genius" has been selling music as a loss leader, similar to how Best Buy and Wal-Mart sell CDs at or below cost to drive traffic into their stores. Apple’s gamble was that eventually consumers would purchase iPods to carry all that downloaded music around ; and that gamble paid off handsomely. "That’s a huge advantage they have over all the other players in the market," said Barrett. "They don’t need to make money off of the music itself." This also gives Apple an advantage over competitive licensed download services, which may not have similar connections with MP3 hardware, and may not be able to compete with iTunes on price.

"Sooner or later," concluded Barrett, "I think the majority of subscribers are going to be using predominantly legitimate services ; and I think that’s especially going to be true as you see the legitimate services become more robust, [with] more functionality and more revenue models being tried. [This] will slowly chip away at the advantages of the illegal networks, to where consumers have less incentive to use them."

"I think it’s wrong to see P2P and iTunes on the same playing field ; to call them ’competitors’ is kind of false," said Alec Hanley Bemis, a freelance writer published in LA Weekly, and owner of an independent record label, Brassland. Bemis believes that to lump iTunes and other licensed services together with file-sharing systems, is to confuse the market. "We’re seeing the emergence of new, hybrid e-marketplaces that are unlike any that have existed in the past," Bemis continued.

P2P, he believes, is the modern flea market with its wares of dubious origin ; whereas iTunes represents an evolution of publishing media - specifically, radio, trade magazines, and billboards. As such, even though they end up distributing the same format of product, P2P and paid services such as iTunes should perhaps be considered separate industries, with similar products, though with entirely different customer bases.

"If people have no money to spend on things," said Bemis, "they don’t mind going to the mud to get the product that they want." P2P users, stated Bemis, don’t download unlicensed music particularly because it’s their preference to do so, but because their economies of scale are incompatible with the alternative. Some, he continued, "are such music geeks that their appetites for hearing new and different things extends beyond any reasonable ability to pay for music...who do the smorgasbord approach, and download way, way more music than they can actually listen to, [so they end up] with files on their computer, they don’t even know what they are. People whose time is more valuable than that, might gravitate towards something like iTunes."