Peter Kafka

Recent Posts by Peter Kafka

What Happened to the Digital Music Boom? Ask Apple.

Big music ignored digital music for a long time. But over the last few years, that’s changed. Now the industry is hoping that fast-growing digital revenue can help it overcome slumping CD revenue.

That has yet to happen. And now digital revenue–to date, that has chiefly meant sales at Apple’s iTunes (AAPL)–seems to be slowing down. Today’s example: Warner Music Group (WMG), which reported its quarterly numbers today.

Those numbers are fine, by the way. Or at least by econalypse standards: Warner posted sales of $858 million and profits of four cents per share, both of which were better than Wall Street’s expectations.

But while digital revenue was up 28 percent, to $167 million, that’s a slower growth rate than the previous quarter. And the one before that. The breakdown:

  • Q4 digital growth rate: 28 percent
  • Q3: 39 percent
  • Q2: 48 percent
  • Q1: 41 percent

Digital sales still accelerated overall during the last 12 months; they grew 39 percent and accounted for 18 percent of Warner’s overall sales. A year earlier, those numbers were 30 percent and 14 percent, respectively.

But those quarterly numbers don’t augur well, and there’s a good chance they will get worse in the next quarter, because digital sales are now tethered very closely to sales of Apple’s hardware.

Get a new iPod (or iPhone), and you’re likely to spend a few dollars at iTunes for some new songs. But if demand for Apple products slackens a bit–perhaps because the company doesn’t have a compelling new iPod, or perhaps because everyone who wants an iPod has one, or perhaps because the economy is terrible–then the same thing will happen to digital growth.

Which explains why the industry’s new dream involves generating digital music sales independently of Apple. Through, say, Amazon’s (AMZN) digital music store. Or with the mobile carriers and handset makers like Nokia (NOK). Good idea. But it’s not happening in the near future.