Apple managed to hold onto the top spot among music retailers in the US during the first half of 2008, according to new data from market research firm NPD Group. NPD, which continuously gathers data on music-purchasing habits of consumers over the age of 13, says that it believes Apple will continue to lead the retail music market while CD sales continue to slow. However, Amazon's success in the MP3 space is an indicator that the company may eventually challenge iTunes' top position.
The latest numbers come just a few months after Ars broke the news that iTunes had become the number one music retailer in the US, surpassing Wal-Mart for the first time ever (Apple confirmed this a day later). Because NPD surveys all music retailers, including brick-and-mortar giants like Wal-Mart and Best Buy (but not subscription services), iTunes' quick ascent to the top of the list was quite impressive, not just for Apple, but for online music as a whole.
At the time, Amazon fell to the number four spot in the list, which NPD attributed to the continuing decline of physical CD sales (something that Amazon has excelled at for many years). However, the company launched its own DRM-free MP3 store last fall and quickly became the first online music store to offer unrestricted music from all of the Big Four music labels. This is undoubtedly helping to buoy Amazon's music sales as a whole, and NPD agrees. "Amazon's CD buyers tend to be older, so they haven't abandoned the CD format to the extent seen in the average music buyer. Plus Amazon’s successful introduction of its digital download store will help the company improve its position in the future," NPD Group analyst Russ Crupnick said in a statement. We wouldn't be surprised to see Amazon eventually pass Best Buy to reclaim the number three spot in NPD's list.
It is that successful introduction of Amazon's digital downloads that could be troubling for the iTunes Store. Back in April, market research firm Ipsos released a study on brand awareness of digital music services. Not surprisingly, iTunes had the highest level of brand recognition and was considered the best service. However, there was some dispute as to the validity of the study, as services like Amazon and eMusic were not represented. Ipsos told Ars at the time that they weren't included because their numbers were "so small by comparison," though Amazon was expected "to make a significant showing in 2008." Well, it's show time.
Although Apple still has rather a strong following overall, digital music customers (particularly from the tech-savvy crowd) are beginning to make the switch over to Amazon due to iTunes' comparatively tiny selection of DRM-free music. Apple has apparently been unable to come to an agreement with the music labels that would have made the iTunes Store the largest (legal) repository of DRM-free music on the planet before Amazon came along. The likely impasse probably concerns pricing, with Steve Jobs adamant about 99¢ per track and the labels insisting on variable pricing. It is the success of Amazon may break that impasse, but not in a good way for Apple. With every move up the charts by Amazon, the bargaining position of Apple becomes weaker. Perhaps it's time for Apple to reconsider that price-point position. After all, better to have variable pricing and DRM-free songs at the iTunes Store now, rather than have labels leave later.
This story contains contributions from Charles Jade.