Apple controls 70% of U.S. music download biz

DOJ could use iTunes dominance in possible antitrust probe

Apple Inc.'s iTunes music store controls a dominant share of the U.S. digital music market, a retail industry analyst said today.

The findings of NPD Group, a New York-based market research firm, could give federal antitrust regulators ammunition as they reportedly begin an investigation into Apple's music business practices.

According to NPD Group, iTunes' share of the retail digital music download business in the U.S. now stands at 70%, an increase of one percentage point since the firm last measured iTunes' position in 2009.

The market share of Amazon.com Inc.'s digital download arm, AmazonMP3, grew by four percentage points to 12% in the same period, said Russ Crupnick, an entertainment industry analyst at NPD.

The remaining digital music business is split among a number of smaller players, including Rhapsody and Napster, Crupnick said. "There are a bunch of places where you can get digital downloads that have 1%, 2% or 3% shares. Downloads are not their core business, but some people buy from them," he said.

"The key take-away is that more than 80% of the digital download business is in the hands of two major players," said Crupnick.

NPD's data may be of interest to antitrust regulators who are reportedly in the early stages of a probe of Apple's business practices.

Reports surfaced late Tuesday that lawyers with the Department of Justice had questioned record label executives and other digital download services, kicking off what could become a formal investigation of Apple's market dominance. Those reports cited unnamed sources who said a complaint by Amazon had sparked the inquiries.

Apple allegedly pressured music labels to pull their support of Amazon's "MP3 Daily Deal," a promotion in which the online retailer received exclusive access to new tracks. In March, music industry trade magazine Billboard reported on the friction between Apple and the large recording labels over Amazon's one-day exclusive.

"Numbers don't lie," said NPD's Crupnick, referring to iTunes' U.S. market share. "But how many folks entered this business, even the music labels, 10 years ago with flawed business models that weren't consumer-friendly?" he asked.

"I'm not party to the discussions behind closed doors between Apple and the labels, but I'd argue that Apple earned every one of their 70 percentage points," he said. "Apple came [into the digital download business] and did it right."

Apple's iTunes operation accounts for 28% of all music -- both physical CDs and digital tracks -- purchased by U.S. consumers, NPD added. That's a gain of four percentage points since the first quarter of 2009. Tied for second place are Amazon and Wal-Mart, which each have a 12% share of all music sales. Amazon boosted its overall share by five points in the last year.

"[Amazon's] dual-pronged approach of selling both digital music and CDs helps attract the most valuable and committed music buyer who prefers access to both formats," said Crupnick.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, or subscribe to Gregg's RSS feed . His e-mail address is gkeizer@ix.netcom.com.

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