Forrester’s James McQuivey Announces the Death of iTunes, Again
December 6th, 2007
Daniel Eran Dilger
Forrester Research seems to be working hard to publish the demise of iTunes. Curiously, the better iTunes does, the more Forrester researchers ratchet up the alarmist fear-mongering. Comparing the increasingly shrill reports of doom for iTunes with actual sales data makes for an entertaining look at the nature of sensational reporting masquerading as independent research and analysis.
Strike One: Forrester and the Register’s Tale of iTunes Collapse.
A year ago, Forrester’s Josh Bernoff published the results of a study that examined consumers’ credit card data. It looked at the sales transactions of 7000 participating users–only half of whom actually used the iTunes Store–and published findings that suggested iTunes sales had rapidly tapered off between January and June of 2006 by a whopping 65%.
Andrew Orlowski of the Register picked up Forrester’s study and turned it into a headline that announced iTunes’ sales were “collapsing.” Before Orlowski could even print his follow up piece recommending a socialist paradise for music distribution to replace iTunes’ free market music sales with a compulsory taxation model, Apple issued an rare statement denying that iTunes sales were down at all.
Panic related to Forrester’s report–and Orlowski’s sensationalism of it–had helped drive Apple shares down 2.9%. Other research groups later pointed out that based on their findings, Forrester’s data was way off the mark. ComScore pointed out that iTunes sales were up 84% over the previous year, with transactions up 67% and dollars spent per transaction up 10%.
Looking at data from different time periods, Piper Jaffray’s Gene Munster found a 78 percent increase in songs sold per week in early 2006, while Shaw Wu with American Technology Research reported a 95% increase year over year from sales of the previous fall.
Forrester had misinterpreted its credit card data and failed to figure in the rush of gift card and allowance purchases that accounted for much of iTunes’ sales. In response to the brouhaha it created, Forrester posted a blog entry blaming the sensationalized reports of plummeting iTunes sales on the press.
Its own graphic of iTunes and iPod sales indicated both were growing dramatically through September 2006, not collapsing. Why was it so quick to publish data that suggested the complete opposite was happening?
In the year since Forrester prepared the above chart, iTunes sales have more than doubled to over 3 billion songs, and iPod sales have doubled to over 120 million units. Apple has also tripled its video sales from 15 million at the beginning of 2006 to over 50 million by the beginning of 2007. The number of downloads sold per iPod has also doubled since 2004 and has steadily increased over the last year, creating a widening margin between iPod sales and iTunes downloads.
Strike Two: Forrester Loves Ads, Bets Against iTunes.
Arguing against such numbers–or insisting they are a sign of impending collapse–is now so far fetched that Forrester has resorted to new tactics this year. Rather than suggesting that sales are in trouble right now, Forrester has decided to insist that iTunes sales will fall apart at some point in the future. Such predictions can’t be immediately refuted with facts.
This spring, Forrester’s James McQuivey announced that the market for paid video downloads was headed toward obsolescence. His report was a thinly veiled assault on Apple’s iTunes, which–in just a year and a half of video sales–already had clearly dominated paid video downloads of TV programming. Apple had just launched new plans to expand into movie downloads. Within three quarters, Apple had already sold two million movies and over 50 million other videos, gobbling up the lion’s share of video downloads by June of 2007.
This time around, Forrester didn’t deny that iTunes was raking in millions of dollars of video sales–most of which Apple pays out to the content owners–but rather laid out a variety of competitors predicted to drain the life from iTunes by delivering video content for free, sponsored by advertising. Specifically, McQuivey bet on Microsoft and Adobe ushering in a new world of video with embedded commercials. He said consumers would “applaud” these efforts granting them the privilege of watching video for free in exchange for forcing them to sit through ads.
What McQuivey didn’t seem to grasp was that consumers already have many avenues for ad supported content. All the downloads in iTunes are being sold to users who opted to pay for content rather than finding it for free. He ignored this obvious fact to present the idea that, “New technology such as the recently announced Adobe Media Player will allow consumers to download video for playback without losing the ads that were sold with the video,” as if such ads were a feature.
Have consumers abandoned DVD sales to watch movies on TV with commercials? No, actually the opposite was true; consumers paid a premium to buy DVDs rather than try to catch movies on TV, even when they are presented for free via advertising. Despite the industry infatuation with ad revenue, consumers have repeatedly voted with their dollars to pay for premium content rather than sit through commercials.
McQuivey warned that Apple would even have to convert Apple TV into an ad supported system that broadcasts “YouTube as well as ABC.com TV shows.” While Apple did unveil YouTube support, there are no ads anywhere. Apple is allowing users to view content without shoving ads in their face, just as with the iPhone and iPod Touch. Why is Apple ignoring McQuivey’s advice?
Apple’s online sales are through the roof, with Apple now delivering 91% of paid TV downloads and 42% of movie downloads, twice as much as the second place Vongo at 21%. Movielink and CinemaNow both have 15%, leaving everyone else to fight over the remaining 7%. Perhaps Apple is ignoring McQuivey because Apple has far more data available to it about what consumers really want.
Strike Three: McQuivey Now Insists iTunes Video Hasn’t Succeeded At All.
If you can’t model the present, and have no grasp at predicting the future, the only step remaining is to simply deny the truth and hope you can at least fool enough people to create a false impression of reality. With enough false information, you might even be able to turn the tide in your favor.
McQuivey’s prediction that ad supported video would usher in a replacement to iTunes and kill the runaway success Apple has enjoyed–over the last two years in both song and now video sales, and over the last year in movie sales–hasn’t materialized at all. Rather than rethinking his prediction, McQuivey has recently simply wished iTunes’ majority share of video sales out of existence.
Yesterday, McQuivey published in CNET an idea he’s been shopping around a variety of online rags in the footsteps of Forrester alumni Rob Enderle. From Wired to Computerworld to the notorious MacNewsWorld, McQuivey has been popping up regularly with sound bites of doom for Apple’s iTunes video business, many of which play upon NBC Universal’s decision to stop selling its content in iTunes in order to pursue ad-only distribution.
“Nobody in the TV or movie business really wants to help Apple do to video what it did to music — that is, become the dominant electronic reseller,” McQuivey keeps repeating. In his own full page article in CNET, McQuivey shifted from an expert source to editorial opinion writer, expanding upon his scattered quotes to deliver a full blown treatise on why iTunes was doomed, starting with the idea that iTunes hasn’t already achieved a dominant position in video sales.
If the Truth Doesn’t Fit: Make Stuff Up.
Under the headline “Why Apple can’t do to video what it did to music,” McQuivey outlined why iTunes is in such potential trouble. First off, “media executives have spent the last two years fretting that Steve Jobs could wreak havoc on the video distribution business the same way he upended the music industry.”
This might be news to the CBS executives who recently noted they were very happy with their iTunes business, as well as FOX, which just joined CBS in promoting its season premieres for free on iTunes. It is also in talks to add its movie library to the iTunes Store.
Viacom billionaire Sumner Redstone recently noted “iTunes has ‘resurrected the music industry’ by creating a legal, affordable, instantly gratifying purchasing system for fans. The challenge now is for the film industry to catch up, and for competing companies to work together to establish new standards and practices.”
McQuivey next attempted to describe another idea why iTunes was doomed to fail in video, saying Apple’s “media distribution strategy is not going to work in video like it did in music” because “the movie industry won’t let you rip DVDs to iTunes.” If anything, one might think this would enhance iTunes movie sales rather than harm them.
Even so, surely McQuivey knows that that the music industry is also against ripping CDs, and that ripping DVDs isn’t exactly something the movie industry can stop. With tools like Handbrake, even non-technical users can rip their DVDs for use on portable players like the iPod and for Apple TV with a click of a button.
McQuivey next brought up WalMart’s wider selection of online movies without noting that that availability hasn’t translated into actual sales. And then, the pièce de résistance: Apple’s strong TV sales are “stalling” because of the departure of NBC Universal, which he estimates to make up 30-40% of iTunes TV downloads. “Without NBC’s content, iTunes is only 60 percent of a store,” McQuivey announced.
Perhaps Forrester needs to do some research: iTunes isn’t a partnership, its a retail store. Apple is acting as a retailer, and content providers are marketing their content through iTunes. The consumers who have decided to use iTunes to download video aren’t going to leave because NBC pulled its shows; they’re going to buy content that is available, content from CBS, FOX, Viacom, and others. NBC abandoning iTunes makes as much sense as pulling its licensed merchandise out of WalMart to spite that retailer.
McQuivey seems to realize how precarious his logic is. He warns CNET readers, “don’t let the Mac geeks posting angry blogs against NBC fool you. Any supposed backlash against NBC will not materialize,” leaping away from the real problem: NBC isn’t going to suffer from angry blogger backlash, it’s just going to suffer a 100% drop in iTunes revenues while Apple promotes other TV content instead.
Forrester’s Advice to Apple: Be Like Microsoft, Destroy User’s Media, and Chase Adware.
McQuivey is already casting a bad light on the competence of Forrester Research, but his next advice to Apple further reveals both his tenuous grasp of reality and the real message he is working to seed. “There are additional obvious things Apple can do, like changing from a download-to-own model to a pay-per-view movie model, a strategy that Hollywood has embraced and that also solves long-term storage problems for consumers.”
Yes, exploding media rentals! That worked so well for Microsoft. Things get even weirder as he keeps going. “However, the real innovation comes if and when Apple funnels more Web video–both professional and user-generated–into iTunes.” How about the video content in iTunes’ 100,000 free podcasts?
“Of course, the only way to download Web video without getting sued is to let Web video providers embed ads in the video streams that iTunes will capture. Have no doubt, the 6 million U.S. households with video-enabled iPods would be welcome target customers for top video sites’ advertising ambitions,” McQuivey continues.
Right, we’re all demanding more ad content in our iPods. Is it possible that McQuivey doesn’t know that the iPhone and iPod Touch already stream YouTube and live podcast video? Has he not yet grasped that Apple doesn’t do content advertising? And why should Apple? It’s in the hardware software integration business. It runs iTunes to make sure there is compatible commercial content for its media players, not to prevent media playback on other systems or to persecute the companies that make millions selling their TV and movies through iTunes.
So much of McQuivey’s analysis makes so little sense that it calls into question how sound the rest of Forrester’s statistics are. Does McQuivey really think he now has the capacity to out think the market leader after being so wrong in his last attempt? Will McQuivey become another Enderle hounding Apple with made up research and erroneous pontification, or will he move on to other subjects after being proven wrong about iTunes?
We know Apple is leading media downloads because we have actual sales data. We also know that Forrester Research is not paid by Apple to make up its headline generating reports. That suggests a connection between the amount of anti-iTunes rhetoric it puts out and its credibility as a research outfit.
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