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Microsoft moves in on music downloads

No Apple turnover, this time

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Analysis The press say this is Microsoft IBM all over again from the 1980s with only one result possible. We're not so sure.

Everything that happened in online music seems to be related this week, starting with Apple owning up to an astonishing 2m iPod sales in its last quarter in the results it launched last week. The results were enough to catapult Apple's stock market value from $15bn to $17.8bn, a 17.5 per cent increase in just a couple of days trading. A year ago Apple was hovering around $8.8bn in value and it has now more than doubled this.

The stranglehold it has on this market is now what analysts everywhere are debating, as multiple offerings came out this week and the long awaited Microsoft response with its MSN music service finally saw the light of day.

Apple accompanied the results by saying that it has now sold 150 million song downloads and is now on an annual run rate of 200m songs. US researcher the NPD Group has issued a report this week saying that Apple iTunes is delivering 70 per cent of all music downloads.

This compares with Napster, which accounted for 11 per cent, and RealNetworks, Musicmatch and WalMart, each with a six per cent share.

But that's not all that NPD is saying this week. It turns out that it has tracked the gradual reduction in the use of MP3 files. We suppose that this was inevitable as companies like Apple, Microsoft, RealNetworks and Sony all push their own music formats when they sell music online. However all of these support MP3 files as well because it remains 72 per cent of all music on PCs, says NPD, down from 82 per cent a year ago.

Hard-drive share

"People are still getting MP3s and putting them on hard drives but are deleting them at a rate faster than they're acquiring them," said NPD's MusicWatch Digital.

NPD says that so far the big winners have been the formats backed by Microsoft and Apple, each of which has gained about five per cent 'hard-drive share' in the past year. The project surveys the hard-drive contents of 40,000 different people through an online panel in the US only.

NPD researchers estimate that there was a net loss of about 742m MP3 files from US hard drives between August 2003 and July 2004, despite people acquiring billions of songs from file-trading networks and their own CDs. The number of consumers paying for downloads reached a peak of 1.3m in April 2004 and since then, NPD says, the number has actually been going down, and is now at just 1m users per month.

NPD said that this downturn coincides with the end of promotional periods offered by several of the online services, in which consumers were offered trial price incentives.

All of which means that there is still an awful lot to achieve in online music services, and the feeling that NPD tries to give is that about half of the new files have been Windows Media, and half Apple's AAC. The interpretation that could be put on that is that Microsoft and Apple are running neck and neck. Which is of course not true as Microsoft has only just switched its service on.

What has been happening is that most competitors to Apple are smaller, less well-funded and less well-thought out efforts. When that's the case you have to take the hardware, DRM and software that's already available to you in order to create a new service quickly and cheaply.

So this is Apple, versus the rest (on Windows), versus piracy. And NPD would have us believe that Apple has gone so far, but may go no further.

The press has voiced a very similar story this week as Microsoft orchestrated a series of announcements designed to plant that very idea.

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