Although some news stories may have drawn exaggerated conclusions from a
Forrester Research report citing slipping Apple (Nasdaq: AAPL) 
iTunes Music Store sales, the digital download industry may nevertheless be facing problems ahead.
Forrester Analyst Josh Bernoff, author of the report, says in his blog that media companies misinterpreted Forrester data showing a decline in song sales of 65 percent during the first six months of 2006. "iTunes sales are not collapsing," he maintains, explaining that the drop is largely a seasonal phenomenon.
Jumping to Conclusions
The report's analysis of credit card transaction data did indeed reveal a significant drop between January and the rest of the year. However, there were not enough purchases represented in the study for reporters to conclude that sales were plunging, Bernoff noted.
Only 3.2 percent of the 5,580 U.S. households in the Forrester report panel bought music from iTunes during the period studied. "That point was just too subtle to get into these articles," Bernoff pointed out.
The so-called sloppy reporting may have contributed to a 3 percent stock dip that coincided with the widespread misinterpretations of iTunes sales declines, according to Bernoff. Apple called Forrester and was "clearly upset," he said.
Apple could not immediately be reached for comment, but the company did issue a statement: "The conclusion that iTunes sales are slowing is simply incorrect ... iTunes sales represent nearly 6 percent of all music sold in the U.S., making us the fourth-largest music retailer."
The Real Story
One of the undisputed trends revealed in Forrester's report is the lack of iTunes sales growth despite a growing number of song downloads.
Piper Jaffray on Tuesday issued a report that showed Apple sold 18.5 million songs per week from January 2006 through September 2006, compared to 10.4 million songs per week during the same period in 2005.
Most of the sales were one-song purchases, according to Forrester. That could lead to declining sales figures, said Inside Digital Media Senior Analyst Phil Leigh.
"It's puzzling as to why iTunes sales have flattened out, but it appears that there are two problems," he told MacNewsWorld. "Initially, a greater percentage of consumers were going to iTunes and purchasing an entire album. Consumers have become conditioned to buying only songs they like as opposed to the whole album."
DRM, Anyone?
The second issue -- digital rights management (DRM) -- has nothing to with Apple or iTunes, Leigh added. The labels insist on DRM, but consumers are taking issue with the technology.
"DRM violates a fundamental principle of marketing 
, which is consumers simply will not pay you to further complicate their lives. DRM complicates their lives, and they don't want to mess with it," Leigh explained. "By contrast, emusic.com, which sells songs from independent labels, lets you purchase the songs without DRM -- and their business is up."
If industry stakeholders want to sell more music, they should abandon DRM, and music stores should migrate to a subscription model to offset negative impacts of one-song purchases, Leigh said.
"I don't expect any change to happen quickly," he concluded, remarking that record label executives won't change their opinions unless you convince them it was their idea.
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