Apple's Big Hit

Online store sells more than 2 million songs in two weeks.

BY WARREN COHEN

June 12, 2003

The second week after its gala opening, Apple’s new online-music store duplicated its huge first week, selling another 1 million songs. The company says more than half of those sales were for full-length digital albums rather than singles. For the slumping music industry, which has seen music sales fall eight percent through the first four months of 2003, compared to the same period as 2002, this news came as a ray of hope.

“It’s a small but reasonable audience, which is very encouraging,” says Interscope Records chairman Jimmy Iovine. “It’s our first real offensive move in this area.”

Interscope artists are heavily featured on the site – including top acts such as Eminem and U2, who have provided exclusive material. “Anyone who has got a penicillin for what’s wrong with the music biz deserves our encouragement,” says U2’s manager Paul McGuinness.

Although those initial numbers are impressive, they represent a small portion of the music industry’s $11.5 billion annual revenues. At this pace, the labels stand to earn about $33.8 million from the iTunes Music Store this year, which lags behind the $45.4 million that vinyl records brought in last year. Even if Apple continues to sell a million downloads a week for the next year, revenues won’t match the collective projected take of subscription services like pressplay, MusicNet, Rhapsody and Musicmatch, according to technology-research firm GartnerG2. That’s because the subscription ventures operate on the Windows platform, and U.S. users of Windows PCs outnumber Macintosh users by twenty-five to one.

So far, due to ongoing piracy concerns, only two of the five major labels have reportedly signed deals allowing Apple to develop a Windows version. Those concerns are likely to grow now that hackers have found a way to use iTunes software to share music. But Iovine believes creating a Windows version is worth any risk. “Whoever doesn’t license music is crazy,” he says. “It’s a huge mistake.”