Business Matters: Study Shows Why iTunes Radio Lacks Big Impact on Download Sales

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A new report by Music Forecasting shows why iTunes Radio isn't the boon to track sales people thought it could be. Listeners of Internet radio aren't opposed to buying music. They simply don't want to interrupt the listening experience to hit the buy button.
 
Music Forecasting believes it knows the problem. Based on interviews with 40 to 50 people in Philadelphia and Raleigh, N.C., a new Music Forecasting report claims that iTunes Radio listeners use the service for a "lean-back" listening experience. Like other forms of radio, iTunes Radio provides listeners a variety of music for very little effort. Such an experience is not conducive to building a music collection.
 
This finding should deflate some of the optimism that originally surrounded iTunes Radio. Launched Sept. 18, Apple's answer to Pandora was thought by many in the music business to have potential for incremental track purchases. The service tightly integrates a buy button that allows the listener to buy a track from the iTunes Music Store. It got off to a quick start, attracting 20 million listeners in about a month.
 
But no sales boost ever materialized. As I noted in November, a dip in track sales coincided with the launch of the service. Track sales were down 12.9%% year-over-year in the fourth quarter and fell an equal amount in the first three weeks of 2014.
 
Buying music on iTunes Radio clashes with the nature of radio. Users simply don't want to lean forward to buy music when they're enjoying iTunes Radio's lean-back listening experience. The availability of free music doesn't prevent people from buying tracks, explains Sam Milkman, executive VP at Music Forecasting. The interviews revealed that most people still buy music -- both digital and physical -- and want to own a music collection.
 
iTunes Radio will result in some level of purchasing. People interviewed for the study are "very aware" of the button and think it's a good idea. Other Internet radio services such as Pandora have long had buy buttons that take the listener to either iTunes or Amazon MP3. But Milkman doesn't believe iTunes Radio's buy button will result in a large increase in incremental purchases. Instead, purchases will be casual and sporadic.

"It seems more like a trickle than a flood," he said.
 
Music Forecasting discovered that listeners enjoy some things about iTunes Radio. People interviewed like that iTunes Radio is part of their devices' operating system. In other words, less time is required to find the iTunes Radio app than other streaming music apps. They also like that iTunes Radio has fewer commercials -- although a streaming service's advertisement load typically increases over time.
 
But iTunes Radio will face difficulties grabbing share from existing services. Music Forecasting found "a large, large number" of people were already using music streaming apps such as Pandora, Spotify and iHeartRadio. Pandora specifically may have the advantage of high switching costs. Milkman says Pandora users are hesitant to switch services and abandon years of feedback, the "thumb up" and "thumb down" ratings given to songs that helps Pandora fine tune the listening experience.
 
Could iTunes Radio, and other music streaming services, eventually have a positive impact on download purchases? It must be noted that iTunes Radio is young and its ability to sell music could improve over time. Music Forecasting has specific suggestions for Apple to implement over: emphasize the benefits of owning music, offer discounts or other purchase incentives and explain how features, such as a user's listening history, can help users find music to buy.
 
A streaming service pushing the benefits of music ownership may seem like a mixed message -- especially for a streaming service that lacks a complimentary download store such as iTunes. Consumers tend to use a service for either streaming or purchasing but not for both. Milkman counters that some consumers won't fully buy into the access economy. Music Forecasting's study found that most people want to listen to both Internet and broadcast radio and listen to their own music collection.

"I don't think we should abandon the ownership model because it still works for some people," Milkman says.

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