Fourteen years ago this week, Steve Jobs introduced iTunes at Apple’s 2001 MacWorld Expo. The company touted the service as “the world’s best and easiest to use ‘jukebox’ software.”
Now it’s starting look about as old and dated as a jukebox.
The service that revolutionized the music business with pay-by-song downloads has been left behind as the digital world evolves. Streaming services like Spotify, Pandora and Google-owned YouTube have won over consumers, allowing them to listen to music and watch videos for free in exchange for watching ads, or paying a monthly fee. That’s taken a bite out of Apple’s iTunes sales. According to a report this fall from The Wall Street Journal, citing people familiar with the company, digital music download sales at the iTunes store fell somewhere between 13% and 14% worldwide last year.
Paid downloads of all digital song sales were down 12% last year according to a report from Nielsen SoundScan. Downloads of albums dropped 9%. The use of streaming, however, grew 54% over the same time: 164 billion songs last year, up from 106 billion in 2013.
“‘We all become our parents’ is the lesson here,” says Yahoo Finance’s Jeff Macke. “And now Apple all of a sudden is looking kind of ‘dad-ish.’ They’ve got their dad jeans all hitched up to the navel and looking a little old and stodgy there.”
But "dad jeans" aside, iTunes is still a money-maker for Apple (AAPL). Despite a drop in song sales, iTunes store revenue was up overall last year, generating $10.2 billion in net sales during 2014 compared to $9.3 billion during 2013. “You don’t want to break iTunes if you own it, even if you know it’s becoming culturally less relevant because it makes you billions and billions and billions of dollars,” says Macke.
That’s not to say Apple is shying away from dipping its toe in the streaming business. iTunes already offers a streaming radio service. And according to a recent report in the Financial Times, Apple may be rebranding the streaming music service it acquired in last year’s massive Beats deal and bundling into its iOS operating system. That could mean the Beats service would be automatically available on millions of iPhones and iPads when users update their software this year.
Apple dominated the online music business for years in the early 2000's largely because CEO Steve Jobs, sensing the change in the music business, began contacting executives at major record labels concerned about free file sharing services like Napster that were popping up. The Recording Industry Association of America sued Napster over copyright infringement and the service was shutdown by 2002. Jobs eventually established deals with the major record labels; Apple then owned the market.
But that's ancient history now and playing catch-up may prove difficult for a company that's had the wind at its back for so long. Macke says, “We get to see now if they’ve got the wontons to innovate down there in Cupertino.”