DIGITAL DIVIDE

Apple Solidifies Its Lead Among U.S. Music Accounts, As Mobile Merchants Fade
Ed Christman

Apple's iTunes store, which emerged in 2008 as the top U.S. music account for the first time, widened its lead last year over former market leader Walmart.

According to my analysis of 2009 sales and market share, the top 20 U.S. music accounts accounted for 85% of the total account base. That's down from 88% in 2008 and runs counter to an almost decade-long consolidation trend under which the top 20 accounts continued to capture an ever larger share of the total market.

That was due to declining market share among the brick-and-mortar accounts in the top 20. The top 20 merchants selling CDs and other physical formats comprised 49.3% of the account base in 2009, plunging from 57.5% in 2008.

Meanwhile, digital accounts in the top 20 made up a combined 35.5% of the total account base, up from 31.6% in 2008. That gain of nearly four percentage points came despite a decline in the combined share of mobile service providers, once touted as the recording industry's next big thing. Collectively, Verizon Wireless, Sprint Nextel, T-Mobile, AT&T and mobile content provider Zed accounted for 4.9% of the market, down from 6.6% in 2008. That was probably due to the declining number of ringtone downloads, as well as declining ringtone prices.

But iTunes more than offset the mobile decline, growing its share of the U.S. account base to 26.7%, up from 21.4% in 2008 and more than double the 12.7% share the company had in 2007. Last year's share gain was helped by Apple's embrace of variable pricing on digital tracks. But it remains to be seen if iTunes can continue to expand its market share this year, given that year-to-date digital track sales in the United States are down almost 1% from the same period last year, according to Nielsen SoundScan.

No. 2 account Walmart saw its 2009 share sink to 12.5% in 2009 from 15% in the prior year, no doubt hurt by the retail giant's continued scaling back of floor space dedicated to CDs. More tellingly, Best Buy, which is also reducing the store space it devotes to music, had only 8.7% of the account base in 2009, down from its pre-Napster share of 10.7% in 2008. Broken out on its own, Napster had a 0.7% share in 2009, down from 1% in 2008.

Other accounts losing market share included Trans World, which was down nearly a percentage point to 2.9% due to a flurry of store closings, and Alliance Entertainment, whose share fell to 6.1% from 7.7% in 2008 due to business it lost through the liquidation of Circuit City.

As traditional music retailers close their doors and big-box merchants reduce shelf space for music, Amazon's piece of the account base keeps growing. The merchant's share stood at 7.1% in 2009, up from 4.9% in 2008. Its physical music sales alone accounted for a 5.8% share, up from 4.2% in 2008.

If broken out as a separate account, Amazon's MP3 store captured a 1.3% share in 2009, up from 0.8% in the prior year and good enough to have ranked as the 10th-largest account. But that's still well short of where major labels had hoped Amazon's download store would be by now, dimming earlier expectations that it will be able to significantly reduce the labels' heavy dependence on iTunes for digital sales.

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