iTune Sales Plummet

The National Post headline read: Sales Cut In Half: Revenue plummets 65% as consumers lose their appetite for Apple iTunes.

And with that news, spread broadly across the mainstream media, Apple stock dropped 3%.

The problem? The story is simply not true.

From the National Post:

Since January, 2006 the number of monthly iTunes transactions has declined 58%, while the average size per purchase declined by 17%, leading to a 65% overall drop in monthly iTunes revenue, U.S. market research group Forrester said in a survey among North American consumers.

National Post took the story from Reuters. Faced with numerous questions on the validity of the research, Forrester made a post on their blog to clarify their report. Here is an excerpt:

What an interesting couple of days it’s been. What follows is a case study in how information — and misinformation — spreads on the Net.

We put out a simple little report about iPods and iTunes based on credit card transactions and publicly stated Apple data. And for those who aren’t Forrester clients, I blogged the highlights. In case you are wondering, we ran the report by Apple, and they declined to comment.

Since then: – The New York Times ran a little fairly balanced pieced on the research. This got us on the media’s radar screen. Then . . . – A UK outfit called The Register and Bloomberg decided to dive in and highlight one finding of the report — that iTunes sales had dropped in the first six months of this year. We got treated to wonderful headlines about iTunes sales “collapsing” and “dropping” and “plummeting” and so on.

Now for the record, iTunes sales are not collapsing. Our credit card transaction data shows a real drop between the January post-holiday peak and the rest of the year, but with the number of transactions we counted it’s simply not possible to draw this conclusion . . . as we pointed out in the report. But that point was just too subtle to get into these articles. – Apple’s stock actually did plummet — 3%.

I started getting calls from hedge fund managers. Apple’s spokesman called and, although they refuse to go on the record with any facts, they’re clearly upset. And I also heard from the Chicago Tribune, San Francisco Chronicle, LA Times, Financial Times, Toronto Globe and Mail, thestreet.com, etc. At this point I was trying to get people off the “65% drop” idea and onto some of the more interesting ideas in the report, with mixed success.

Now, you can’t unring the bell. But I will try to focus you on the truth here, which is this: iTunes sales are leveling off, the Journal did an article about it last Friday with data from Soundscan. Apple is not in trouble — it makes its money mostly from iPods, and iTunes is just a way to make that experience better. It’s the music industry that has to worry, since the $1 billion a year or so from iTunes, globally, doesn’t nearly make up for even the drop in CD sales in the US, which are now down $2.5 billion from where they were.

The researcher from Forrester got another point wrong. This was not a case study on how information and misinformation spreads on the Net. This was a story that leaped over to the mainstream media. And, in the spirit of diligent journalism, the papers simply grabbed a news feed and printed it for effect. No validation. No investigation.

In other words, the mainstream media became a parrot.