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Analyst: Yahoo music service will not impact iPod sales

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By LC Angell

Contributing Editor
Published: Wednesday, May 11, 2005
News Categories: iPod

Piper Jaffray senior analyst Gene Munster said today that he does not think sales of the iPod will be affected by Yahoo’s new subscription-based music service offerings. “We do not anticipate the market share of the iPod will be meaningfully impacted by the emergence of Yahoo! and other music subscription services,” Munster said in a research note obtained by iLounge. “In addition, if subscription services become more successful, we believe that by year end Apple will introduce its own version of a subscription based music service.”

“We have seen over the last two years that the success of online music services is driven by compatible devices,” Munster said. “As a datapoint, despite new music services in the past year, Apple has maintained its ~80% market share in the portable audio device market. In other words, the risk to Apple is a killer new MP3 player, not a new online music service.” Munster also reiterated his that by the end of 2005 more than 35 million iPods will have shipped.

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Comments

1

Thank you; finally someone who has some sense about the Yahoo! move.  Now, if only the idiots over at BusinessWeek would also get the message and stop spreading their FUD around.

Posted by flatline response on May 11, 2005 at 1:58 PM (PDT)

2

Price competition will continue to drive down the price for these all-you-can-eat services to a nice round figure, probably low single digits. Tacked on to your cell or cable bill, much like unlimited text messaging.

The issue with subs is that then the touchpoints become key. You’re paying for a sub so you want to be able to listen to and download the tracks to all your devices: your mp3 player, your phone, your car, your home stereo.

Sadly Apple does not yet have an embedded DRM technology that can deploy across many different environments. The M$ Janus project does, which is why all the big guns are now falling over themselves to pile on board.

So the subs services will become device-agnostic but service-specific. This is bad news for any *single* manufacturer of any *single* device, but great news for people running the service.

Jaffray is being slightly disingenuous in its appraisal of Yahoo’s prospects. It will have no meaningful impact in the iPod… yet may force Apple to abandon its stance against subs and release a me-too service by the end of the year? That is a contradiction!

One important note about Piper Jaffray is that it is far from uninterested in prospects for Apple stock. In fact, it makes coin from buying and selling Apple stock, as well as being paid by Apple for services rendered. This is the standard boilerplate Piper Jaffray attaches to all of its reports and news releases:

Piper Jaffray was making a market in the securities of Apple Computer, Inc. at the time this research report was published. Piper Jaffray will buy and sell Apple Computer, Inc. securities on a principal basis. Piper Jaffray has received compensation for non-investment banking securities-related services from Apple Computer, Inc. within the past 12 months.

Posted by Demosthenes on May 11, 2005 at 8:29 PM (PDT)

3

Jaffray’s ‘contradiction’ seems to me to be more of a qualifier than them actually speaking out of both sides of their mouth.  People do tend to fall for the player first, then think about the music they buy; considering the persuasiveness of the iPod family, Apple automatically has a big advantage in that respect.  Plus, with Apple supposedly preparing to release their next-gen iPod shortly, it seems more than justified that Yahoo’s subscription service, however cheap, will continue to have a major disadvantage in that it simply isn’t compatible with the iPod universe.  Everyone else before them in the Janus world has floundered in the face of iPod; it wouldn’t be surprising that Yahoo will as well.  Such is the pull of those little white AAC players.

But Jaffray is also hedging on their assessment should low-cost subscription services really catch on. All they’re doing is pointing out that Apple’s hands are not necessarily tied to their current iTunes model should Yahoo’s Music Service begin to steal away business.  The option is there for Apple to go into direct competition, though my guess is that it won’t be nearly as financially lucrative.  As I see it—and as Jobs has hinted at—it’s more likely the 99 cent purchasing point will see price cuts first before Apple seriously considers releasing a subscription service.

Posted by flatline response on May 11, 2005 at 11:17 PM (PDT)

4

<i>Everyone else before them in the Janus world has floundered in the face of iPod<.i>

There are now around 1.5 million monthly Internet atreaming subscribers. Rhapsody has around a million, Napster around a half million.

That’s between a $120m and $240m annual take, with several *billion* tunes streamed annually. Subscriber numbers are growing by around 40% quarter-on-quarter.

And yourestimate of the profitability of the subs model is way off. The providers don;t have to pay a per-track fee for each license, like Apple currently does, but instead pay a per-period use fee. Much lower net cost.

And the push onto mobiles has not taken place. And these numbers exclude satellite streaming.

Tell me - how is that a failure? Your message indicates that you are still thinking about a device model, not a service model.

Posted by Demosthenes on May 12, 2005 at 5:43 AM (PDT)

5

I want an Ipod but I want subscription services, and before years end, dummy so that people buy more ipods for Christmas.

Posted by Ben on November 10, 2005 at 8:14 PM (PDT)

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