Must-know: Will Apple’s iTunes Store growth recover?
Apple's App Store could surpass iTunes Store revenues soon (Part 2 of 4)
Apple’s iTunes Store revenues are showing slower growth
In the previous part of the series, we discussed how Apple’s (AAPL) App Store continue to show strong growth and could surpass its iTunes Store in terms of revenues soon. We believe the main reason why Apple hasn’t been able to grow its iTunes service is because of its reluctance in the past to enter into the music streaming service. They have largely relied on selling individual songs for between 69 cents and $1.29 through its iTunes Store. According to a report by Kleiner Perkins Caufield Byers, and as shown in the chart below, overall physical music sales declined 13% and digital music sales declined 6%, while streaming music consumption increased 32%.
Beats acquisition could change this equation
In September last year, Apple introduced the iTunes Radio service, through which users can listen to free ad-supported music. Then there’s the $24.99-per-year iTunes Match subscription service through which users can listen to ad-free songs. This was Apple’s first attempt to enter into the music streaming market. However, these efforts didn’t materialize according to expectations. Apple acquired the subscription streaming music service Beats Music and Beats Electronics, which makes headphones, speakers, and audio software, for a valuation of $3 billion last month.
Acquiring Beats would help Apple leverage the fast growth potential of the music streaming market. It would also allow Apple to compete more effectively with other popular services, such as Pandora (P) and Spotify. Amazon (AMZN) also recently entered the music streaming service, and this service will be free for Prime customers of Amazon. No wonder so many tech players are entering into the music streaming service to leverage its fast growth. Apple’s acquisition of Beats is justified. It will be interesting to see how Beats would help Apple regain the iTunes Store revenue growth and help ETFs such as the iShares Dow Jones U.S. Technology ETF (IYW) , the Technology Select Sector SPDR ETF (XLK) , and the Vanguard Information Technology ETF (VGT) , which have high exposure to Apple.
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