Apple iTunes: Changing the Face of Online Music Retailing Industry

            
 
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Case Details:

Case Code : BSTR070
Case Length : 16 Pages
Period : 2003
Organization : Apple Inc.
Pub Date : 2003
Teaching Note :Not Available
Countries : USA
Industry : Information Technology and Related Services

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"The iTunes Music Store is changing the way people buy music." 1

- Steve Jobs, Apple's CEO, in June 2003.

"The iTunes Music Store has defined what it means for people to have music instantly - and legally - at their fingertips." 2

- Doug Morris, CEO, Universal Music Group, June 24, 2003.

Introduction

In June 2003, Apple Computer Inc (Apple)3 announced that its Internet-based music selling initiative, the iTunes Music Store (iTunes), had sold more than three million songs in the first month of its launch. This figure, far beyond even the company's expectations, took the music retailing industry by surprise.

All those who had predicted doom for iTunes at the time of its launch, watched in disbelief as Apple reported total sales of five million songs by the end of the second month. The music store was reportedly attracting a growing audience day by day owing to its simplicity and ease of use (Refer Exhibit I for a look at the iTunes webpage). iTunes was now being labeled by industry analysts as a revolutionary concept that was all set to change the way music was traded - offline as well as online. Commenting on this, Doug Morris, CEO, Universal Music Group, said, "iTunes is pushing us into the future of how music is produced and consumed."4 Using iTunes, songs could be downloaded at a nominal charge for each song, and copied to or played on portable music players such as Apple's iPod.

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Apart from being simple to use, iTunes reportedly offered good quality music downloads as compared to the other music download services available on the Internet. More significantly, iTunes had emerged as a legal alternative to downloading music using file swapping services like Kazaa, Morpheus and the erstwhile Napster.

Corporate players were happy that there seemed to be hope for legal, paid music downloading services. Industry observers as well as companies in the music and Internet businesses were liberal in praising iTunes, calling it one of the best things to have happened to the ailing music industry (Refer Exhibit II for information about the major players in the industry). Commenting on how iTunes had shown that selling music over the Internet was viable and safe, David Goldberg, General Manager for Music, Yahoo, said, 'Apple's service shows there is consumer demand, and it shows they have built a great product."5 Roger Ames, Chairman and CEO of Warner Music Group, said, "Everyone in our industry is looking for a solution, and Apple is leading the way with the iTunes Music Store."6

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1] 'Apple Touts iTunes Success,' www.pcworld.com, June 24, 2003.

2] 'Apple Touts iTunes Success,' www.pcworld.com, June 24, 2003.

3] The US-based Apple manufactures and sells personal computers and other personal computing solutions (hardware and software). It owns a network of retail stores where it sells Apple offerings and third-party products. For the nine-month period ended June 28, 2003, Apple posted $4.49 billion in revenues and a net profit of $25 million. The company, renowned for its innovative products, was ranked ninth among global PC manufacturers and had a 2.1% market share in the first quarter of 2003 (2.9% in the US).

4] 'The Chilli Peppers' Sour Grapes Over iTunes', BusinessWeek, July 16, 2003.

5] 'Big Names Ready to Rival Apple,' www.pcworld.com, June 10, 2003.

6] 'Apple Touts iTunes Success,' www.pcworld.com, June 24, 2003.

 

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