Original URL: http://www.theregister.co.uk/2005/09/07/apple_responds_to_rivals/

Apple touts iTunes' UK 80% market share

Under pressure

By Tony Smith

Posted in Financial News, 7th September 2005 09:36 GMT

Analysis Let there be no doubt that High Street music retailers Virgin and HMV to the UK's digital music market is shaking the tree. Even the formerly lofty Apple has felt it necessary to issue a public statement stressing its market leadership.

Apple today told World+Dog that it holds first place in the UK digital music arena, commanding an 80 per cent share of the market. It cited figures from the Official Charts Company, which monitors one-off downloads from all the key digital music services and compiles them into its weekly singles chart.

Apple also claimed the UK iTunes Music Store offers more than 1.7m songs - ahead of the 1.6m tracks Napster UK said earlier this week it was offering.

Yes, like Apple, Napster UK also feels the competitive pressure from HMV and Virgin, and on Monday put out the first usage statistics in its 15-month history, as we reported here. To be fair, Apple has consistently put out download totals since ITMS launched in the US in April 2003, incorporating numbers from the UK when the British store went live in June 2004, a month after Napster UK did.

Apple remained silent when retail giants Tesco and Woolworths launched their online music offerings during the tail end of 2004, but now it's up against a more solid threat: the brand equity that HMV and Virgin have among the UK's music consumers. As we've argued before, Apple has the advantage of iPod and its close ties with ITMS, but there remains a consistent number of digital music buyers whose computer is their prime playback system. With no favoured portable player to tie them to a particular online store, they are free to buy from the service with the biggest catalogue and/or the cheapest prices.

Case in point: why buy the Rolling Stones' critically acclaimed new album, A Bigger Bang, from iTunes when you can get it much more cheaply at Virgin Digital, for example. Both stores charge £0.79 a song, but Virgin is selling the whole album for £5.89 to ITMS' £7.99 - a 26 per cent discount.

Differentiation, differentiation, differentiation

No wonder Apple stresses ITMS' exclusive content, and it's clear that such material is going to play an increasingly important role in differentiating online music services. Like the bricks'n'mortar stores of today, they are going to sell essentially the same catalogues, with differentiation becoming a matter of brand, exclusives and pricing.

Just as, say, 15 years ago, regular music buyers would inherently favour Virgin, HMV or Our Price - then the major UK music chains because of the perceived feel of the stores rather than more practical criteria like stock levels and pricing, so today they will associate with one of the music stores. But that leaves a large potential audience of more casual buyers who don't identify with a specific brand.

We haven't tried HMV's download software yet, but as far as Napster and Virgin Digital go, Apple's iTunes has the clear lead. It is, we think, simply easier to navigate and buy from and, for this user at least, has the advantage of reproducing album art much, much better than its rivals do. It's no surprise that many iTunes features have migrated to other such apps - Virgin Digital's software owes plenty to iTunes' developers. Imitation is, after all, the sincerest form of flattery...

Apple also has another, more subtle benefit: its own format. Yes, that's clearly an advantage because of the iPod tie-in, but it also differentiates its songs as the desktop level. ITMS-acquired or iTunes-ripped songs have their own, distinctive icon. Tracks from HMV, Napster, Tesco, Virgin, Woolworths, Wippit and almost all the other song services available in the UK all yield generic Windows Media Player icons.

Apple may have such advantages, but its statement today suggests it's not relying on them - or the iPod - to maintain the lead it enjoys over its rivals. Indeed, with ITMS projected to contribute a small but significant figure to Apple's bottom line next year, it has to look beyond the portable player. The competition is, at last, heating up and Apple clearly feels rising temperature. ®