The milestone is the latest sign of iTunes' increased market power in distributing music and video content to consumers. Apple launched iTunes in 2003, selling 25 million digital tracks its first year. By 2006, sales had reached 1 billion. The reason for this explosion is Apple’s iPod, the leading MP3 device. Unit sales reached 220 million by November – or 73 percent of the total digital music-player market.
The key to Apple’s sales strategy for the iPod is ensuring that consumers have access to affordable content via iTunes' 99-cents-per-song price model. That market strategy, however, has long frustrated recording industry executives, who complain it devalues their product. Still, for all their protests and threats to withdraw their catalogs, they appear to have no other choice because iTunes is where the consumers are buying.
Here are three ways iTunes has reshuffled the retail business for music and video, for better or for worse.
1. Goodbye album, hello single
Between the demise of the 45-single and the rise of CDs, no format existed to sell single songs. That was the honeymoon era for the recording industry, which reveled in selling complete albums to consumers at a handsome price. The artist who benefited by this arrangement was the one who saw the full-length album as an opportunity to experiment and create a cohesive musical program. The artist who lagged behind was a one-hit wonder whose album was mainly filler around that Top 40 song.
Apple's pricing model once again lets consumers to peck around for specific songs, not albums. (For a list of the top 25 songs sold on iTunes, click here.) For record companies, iTunes' debut meant the demise of “album” artists, such as Pink Floyd and Wilco, and the rise of manufactured pop stars such as Britney Spears and the “American Idol” graduates. These surefire moneymakers are not built for album sales; the model in which they work best is the instant gratification of iTunes, which requires no other commitment from buyers than 99 cents and a few clicks of a mouse.
2. The rise of portable music
Portability, as opposed to the home stereo, is now an essential component of music consumption. The success of iTunes broke open the market for handheld devices, from the smart phone to Amazon’s Kindle – all hardware featuring MP3 playback, wherever and whenever the consumer wants. This new consumer expectation gives iTunes more power than ever: With so many portable devices involved in everyone’s daily life, the Apple store is the primary place to access content. Just as seemingly endless new applications create a continuing revenue stream from iPhone users, iTunes keeps Apple's pricey hardware moving out the door.
3. The death of brick-and-mortar retail
With the birth of iTunes came the demise of the neighborhood record store. The winnowing of brick-and-mortar outlets is a direct result of digital delivery, which is immediate, affordable, and democratic, allowing anyone from young children to seniors a way to buy music without needing to step outside the house. According to the NPD Group, physical sales represented 80 percent of all music sales in 2007; today they represent 64 percent. By contrast, digital sales increased 80 percent in the same time period.