NYT on iPod/iTunes sales - lies, damn lies, and statistics

NYT on iPod/iTunes sales - lies, damn lies, and statistics

Summary: The other day the New York Times published a short article which attempted to draw some conclusions about iPod and iTunes sales based on a report published by Forrester Research. Instead of coming to any sensible conclusion, all the article did was highlight a total lack of statistical understanding at the NYT.

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TOPICS: Apple
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The other day the New York Times published a short article which attempted to draw some conclusions about iPod and iTunes sales based on a report published by Forrester Research.  Instead of coming to any sensible conclusion, all the article did was highlight a total lack of statistical understanding at the NYT.

I'll save you having to read the article (even though it's only about 150 words long) by summarizing it for you:

67.4 million iPods sold as of Sept 06, 22 songs sold for every iPod sold, therefore iPods sales are not driving iTunes sales.

The flawed logic here is clear - 67.4 million iPods sold does not equate to 67.4 million iPods still in use.  Far from it.  Over the last four years a huge number of iPods will have been lost, stolen, damaged or just plain broken.  You could come to a similar flawed conclusion by looking at the numbers of cars sold since 2000 and the volume of gasoline sold.  You come up with a number, but it's a meaningless one.

[poll id=53]

Another factor that the article failed to point out is that iPods are available in countries where the iTunes store is not available.  This is going to skew the numbers by a fair amount. 

In addition, the article fails to address the fact that one family or household might own more and one iPod yet share a single iTunes account. 

We must not forget too about the iPod user's existing music and media libraries too.  People will have music they've ripped that they can transfer onto the iPod.  MP3 players have been around for some time now.  I ripped my entire CD collection to hard disk back in 1999 (between Christmas and the New Year - I remember it well!) and while I've bought and ripped CDs since then, my music library hasn't grown significantly since then (on the other hand, my Audible.com library has grown about fifty-fold in that time).

Bottom line is that iTunes was meant to drive iPod sales, not the other way around.

I think that the Apple iPod/iTunes model is an interesting one.  While some people see through it and just see high-priced, DRMed, low-quality audio, others see it as a cheap, convenient way to buy the music they want.  In that respect, iTunes is a handy service for some iPod owners.  For those that regularly buy music from iTunes, they quickly hit a point where the value of the music library is greater than that of a new iPod and switching is not an option - Apple now has a customer for life.

The fact is that iTunes was never mean to supply all the music fodder that iPod owners wanted.  It's crazy to think like that.  Assuming that the average track is about 4MB, an 80GB iPod can hold 20,000 tracks, and at 99 cents each that means big bucks.  Even a 2GB nano can hold about $495 worth of tunes. 

[Updated: Dec 13, 2006 @ 10:15 am] There's some good analysis over on Blackfriars' Marketing which dispels the myth that iTunes sales are collapsing (thanks to Tic Swayback for the link!)

[Updated: Dec 13, 2006 @ 3:30 pm] Forrester Research is now trying to clarify this issue:

Now, you can't unring the bell. But I will try to focus you on the truth here, which is this: iTunes sales are leveling off, the Journal did an article about it last Friday with data from Soundscan. Apple is not in trouble -- it makes its money mostly from iPods, and iTunes is just a way to make that experience better. It's the music industry that has to worry, since the $1 billion a year or so from iTunes, globally, doesn't nearly make up for even the drop in CD sales in the US, which are now down $2.5 billion from where they were.

Topic: Apple

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  • ITunes Sales

    The main problem with Itunes is that it costs the same to download an album as it does to buy it at a supermarket, but you have to burn a cd yourself and don't get any nice artwork on the cd cover. This may be becoming less important but, if buying as a gift, for example, a lot of people still like a tangible 'CD' . So if Itunes would allow you to download a printable CD Cover (as well as the booklet they do) it would be beneficial.
    pcanapero
  • Statistics 101 for NYT Editors

    Even if you ignore the "rounding down" that occurs because iPod's wear out, the NYT story is still wrong. This is because the ratio of (songs sold : iPods sold) is now roughly 22:1, whereas just this past March (2006), this same ratio was 20:1.

    [u]Layman's Traslation for NYT Editors:[/u] going from 20:1 to 22:1 ratio represents a 10% [b]growth[/b] in CY2006.

    [u]Personal Advice for the NY Times[u]: this February, New York University is offering a 3 week class, titled "The Language of Statistics" (course# X48.9132). Its held on Saturdays, so there's no excuse of missing work.

    Finally, one last thought: to have a 10% growth in one year when the "larger industry" (ie, CD sales) is declining at 4% per year isn't shabby either. Particularly since the iTMS is merely a vehicle to not *lose* money while promoting hardware sales.

    And the NYT's circulation department wonders why we no longer subscribe to their paper.


    -hh
    -hh
  • Why Buy 128Kps Low Quailty Music??

    Why Buy 128kbps low quality music from iTunes when you can get 192 kbps WMA format from the Zune Store or rip it from CD @ 192kpbs at the same or better price? If you appreciate music and use your computer to play it often as I do, you will notice the difference right away.

    A Cnet comparison of MP3, WMA, AAC and bitrates: http://www.cnet.com/4520-7899_1-6396943-1.html&tag=dir

    The Zune is not in the chart in the link above as the chart is older but you can get the point from it that 192Kpbs is better. Since both Zune and iPod have the same DAC, the Wolfson Microelectronics WM8978G, and they both have Toshiba HDD's (not sure why anyone buys the small flash versions when for a bit more you get way more storage)- all is left is the Encoder, the best ones which Apple does not have rights to, but MS does.

    If you want a pretty object to show off on your lapel or belt, then buy an iPod. If you want quality music at the same price as iTunes (better if you subscribe) get a Zune, which is a beautiful work of art also (and has a much more durable case).
    Master Guru
    • Why not the Zune store?

      ---Why Buy 128kbps low quality music from iTunes when you can get 192 kbps WMA format from the Zune Store or rip it from CD @ 192kpbs at the same or better price?---

      Because the Zune store (and the Zune) is Windows-only, shutting out anyone not using Windows, for a starter. Also because the Zune isn't compatible with any of the useful accessories on the market (car kits, in particular). Yes there are a few Zune accessories but they are much more expensive than their iPod counterparts.

      But really the question is a silly one. Why buy a crippled expensive low bandwidth version of a song in the first place when you can pay the same amount and get a non-crippled high quality version? My choice between the iTunes store and the Zune store? How about neither? How about Magnatune or eMusic instead?
      tic swayback
      • Reply to Swayback

        Considering that Windows is on 90% of computers, and most of those are XP, and that MS has promised releases for other operating systems, I find little merit in your argument on that point.

        As for buying MP3 or WMA, I guess you just don't get the point which is quality.

        As for accessories, Zune has many with many more to come - it's new. Your pricing note is conjecture on your part - show the proof.

        As for music stores, the ones you note have much, much fewer offerings.

        I'm no fan of DRM, but the RIAA is serious about it, and the large music stores are demanded to have it or no music. Blame the RIAA, not MS or Apple for that.
        Master Guru
        • Accesories are mighty pricey

          ---Considering that Windows is on 90% of computers, and most of those are XP, and that MS has promised releases for other operating systems, I find little merit in your argument on that point.---

          I don't want my music locked in to any one operating system. Let's say you decide one day to switch to Linux or OSX. Oops, sorry, now you have to re-buy all of your music. Seems like a stupid move to me.

          ---As for buying MP3 or WMA, I guess you just don't get the point which is quality.---

          If you want to argue quality, ripping your own cd's is going to sound better than anything you buy online.

          ---As for accessories, Zune has many with many more to come - it's new. Your pricing note is conjecture on your part - show the proof---

          Proof? Okay, here's a quick look at FM transmitters to play your device through your car stereo:
          http://www.zune.net/en-US/accessories/car/
          The official Zune site lists 3 products that sell for $79.95 each. Take a look at iPod alternatives, for one example, the Griffin iTrip, which costs $29.99 at Amazon or $39.99 with the power adaptor included:
          http://www.amazon.com/Griffin-Technology-9500-TRIPDA-Transmitter-Connector/dp/B000BREQN4/sr=8-2/qid=1166029944/ref=pd_bbs_sr_2/104-2402840-2657508?ie=UTF8&s=electronics

          http://www.amazon.com/Griffin-9501-TRIPCB-iTrip-Transmitter-Charger/dp/B000BWACX2/sr=8-4/qid=1166029944/ref=pd_bbs_sr_4/104-2402840-2657508?ie=UTF8&s=electronics

          ---As for music stores, the ones you note have much, much fewer offerings---

          True, but none of their songs are crippled, and they cost a small fraction of what songs cost from iTunes and Zune. Best bet of all is your local used cd store, which has the selection, price and quality to top all of the above.

          ---I'm no fan of DRM, but the RIAA is serious about it, and the large music stores are demanded to have it or no music. Blame the RIAA, not MS or Apple for that.---

          The only one to blame would be consumers if they accept such shoddy offerings. Don't buy crippled music. It's that simple. If you don't buy it, the RIAA will cave in. They want to make money, so they need to sell a product that appeals to consumers, one which they'll buy. By not buying crippled music from any source, you're sending them a clear message about what is and what is not an acceptable product.
          tic swayback
          • Depends on your needs

            Buying songs at 128 is probably suitable for what most people do with their iPod. If you're using iTunes to run your home system it's a noticable difference if you have a good setup. If you're using earbuds or a poor stereo, or doing things like converting it to an FM frequency (which I think changes the sound more significantly than having a different bitrate), you'll be okay with 128. If you've got a Mac and are running a Toslink (sp?) or using a firewire output, you'll be able to tell pretty quickly and likely if you're using that hardware you'll care about the difference. If you're using your iPod to go jogging with earbuds it really won't matter.
            um.crouc0
          • Except that Microsoft licenses their

            codecs to anyone that is willing to pay for them. Apple on the other hand does not. Who is more about lockin then? Why Apple of course.
            ShadeTree
          • So where's my Zune license?

            ---Except that Microsoft licenses their
            codecs to anyone that is willing to pay for them---

            Really? Show me where I can license the Zune codecs. Oops, looks like MS is all about the lock-in with this particular market.

            At least Apple provides versions of their products for multiple operating systems. MS' music products are Windows-only. Switch from Windows and lose all your music.
            tic swayback
          • Switch? You're kidding, right?

            Why would anyone switch from Windows? None of the other operating systems can do close to what you can do with Windows. We all know that our apps will not run on these other OS's. Switch? You're kidding, right? This is not a reason to consider unless you want to start all over again and want a second mortgage on your house. Seems your just running out of reasons. Even Apple has switched to Intel based PC's (yes it's a PC) and runs Windows now. I suggest you review the facts before someone accuses you of walking around like someone in a Christy Mihos political ad.
            Master Guru
          • Keep on drinkin' that Kool Aid

            Sorry if my post upset you. I wouldn't want you to have to think or to do an actual evaluation of the products you purchase. Just go back to sleep, slowly insert your head back into the sand. Microsoft loves you and will take good care of you.
            tic swayback
          • Mike Cox, is that you? Disguised as Master Guru?

            So many wrong with what you said it has to be satire!
            dave95.
          • I am me

            There is no other.
            Master Guru
          • Again, Quality

            From the Zune Site:

            "The Zune Car Pack includes everything you need in order to rock out on the road with your Zune. The Zune FM Transmitter can wirelessly broadcast the music that is playing on your Zune to your car stereo. Set up is simple with AutoSeek, which automatically finds the right station for you. Just tune your car stereo to the FM station displayed and you?ll be instantly connected. The Zune Car Charger plugs into a car?s lighter adapter so you can charge your Zune while listening to music or using the Zune FM Transmitter. An integrated status indicator in the Car Charger prevents you from using up your car?s battery and its coiled cable makes it easy to store."

            The first item you linked to does not include a charger. The second item you link to is a CarPack, includes the car charger, but is one of the lowest rated models out there. Did you read the reviews on Amazon of those products? I guess not. Please do not compare junk with quality - you clearly seem to misunderstand the two. Again, we have some apple fan comparing apples to oranges, or in this case Zunes.

            Anyway - what I would buy is the Monster CarPlay Wireless Plus FM Transmitter/Charger for Zune which when bundled with a Zune today on Amazon is $306.85. This is a good deal, and very importantly the wireless kit is made by Monster, a well known and recognized maker of high quality A/V cables and accessories. Again, quality. Know those Monster cables that the clerk asked you to consider when you bought an A/V product? Grab some and you will notice a huge difference in sound or video quality. Also grab this kit and a Zune. You'll be glad you did.
            Master Guru
          • Quality?

            Can you give any indication of the quality of the Zune products or are you just going by the reputation of the manufacturers? I own an iTrip (albeit an older version than the one shown) and it's the best FM transmitter I've used (I've tried 3 or 4 others).

            But if you want to compare apples to apples, here's the Belkin Tunebase for the iPod which costs $59.95, the same thing offered for the Zune for $20 more.
            http://www.amazon.com/Belkin-F8Z049-BLK-TuneBase-FM-iPod/dp/B000EF1820/sr=8-1/qid=1166048060/ref=pd_bbs_sr_1/104-2402840-2657508?ie=UTF8&s=electronics

            But if you're really interested in decent quality, you won't use an FM transmitter anyway, as they all pretty much suck. It's much smarter to use a direct line into your head unit. For this, if you've got a deck with an aux jack, you can use the headphone jack from any device. Best of all worlds are the integrated systems whereby you can use the car's controls to control the device. An example is the IceLink or the Drive+Play from Harmon Kardon. That's the main way I listen to my iPod.

            I've read that at least one device is planned for the Zune, but no idea when it will be out or how much it will cost. Also, one issue with these devices is that they tend to be car-specific or at least head unit specific, so more choices makes a big difference here.
            tic swayback
          • Always quality

            No one manufacturer makes all the parts of a Zune or iPod, nor a computer. It is imperative to know who makes the subcomponents and that they are the better versions.

            All these gadgets that you report do not, however, make 128 Kbps AAC sound better than 192Kbps WMA. I assume you are searching for better sound quality with them? Try the Zune. As always, when you have a poor signal in, you can condition it, but it will never be as good as if you had a quality signal in.
            Master Guru
          • Why buy 128 kb/sec?

            Sorry if you misunderstood me. The iTunes store is a bad deal, and I don't shop there. Same goes for the Zune store. I rip my own cd's at 192 kb/s to AAC, a file format that has repeatedly tested superior to WMA at the same bitrate (and results in a smaller file if I recall correctly). I will buy 192 kb/s mp3 files from eMusic because they are extremely cheap (around 20 cents per song) and because I wish to support their business model of selling non-DRMed music.

            So, given that my songs are as high quality if not moreso than yours, and I can use them on any computer, on both the Zune and the iPod, on any operating system, and the really important thing--no one has any right to change the terms of their usage, I'll stick with what I have, thanks very much. Seems like buying into the Zune infrastructure is both more expensive and you get less (less storage, lower battery life, less ability to use purchased music).
            tic swayback
  • Good analysis here

    Someone posted this link in the talkbacks of another article:
    http://www.blackfriarsinc.com/blog/2006/12/do-math-itunes-sales-arent-collapsing.html
    tic swayback
    • Not bad at all

      That's a pretty good link. I looked into getting a copy of the Forrester report but they're charging $250 for it from their website. A lot of money for a report that I think is based off of very poor assumptions. From what I can tell they used credit card data from people who purchased music from iTunes and used their average sale dollar value to extrapolate the revenues in comparision with other quarters. Since TV shows were launched you'd expect a lot of people to be making a number of small purchas (ie: buying one or two episodes), but this in no way relates to the total revenues for the company. The summary of the report suggested that due to the large number of small transactions, service fees could make the business unprofitable. With their business model I'd assume that service fees would be mainly percentage based as they normally are with credit cards (2-3%). Without the report I don't know if that was their actual method but it seems to be along those lines. I think a better way to see what iTunes sales are at would be to actually check a balance sheet from the company.
      um.crouc0
      • Also note

        I believe the report was based solely on US sales as well.
        tic swayback