PiperJaffray refutes claims of 'collapsing' iTunes sales

"In light of recent media reports of slowing iTunes sales, we analyzed music sales data and saw strong year-over-year growth in 2005 and 2006," analyst Gene Munster informed his clients in a research note Wednesday.

In refuting claims made by Forrester Research that Apple's iTunes sales are 'collapsing,' the analyst used the iPod maker's announcements of iTunes sales milestones to interpolate weekly run-rate figures for the period between announcements, therefore accurately tracking iTunes sales growth.

Specifically, he compared total sales between January and September of 2005 and 2006 and saw 78 percent growth during that period. "From Jan. to Sept. in 2005 Apple sold 10.4m songs/week and in 2006 that number was up 78 percent to 18.5m songs/week," he wrote.

Munster acknowledged that with only two full years of iTunes Store data, he is able to identify several seasonal sales trends but not all.

"It is clear, for example, that iTunes sales spike upward in January," he wrote. "In the month of Jan-05 the store's songs-per-day average was up 58 percent sequentially and in Feb-06 (the closest data point year-over-year) the store's songs-per-day average was up 51 percent sequentially."

The analyst attributes the post-holiday growth to new iPod owners and iTunes gift card users, saying he expects another uptick in early 2007. In what he views as a "regular seasonal" trend, Munster noted that the iTunes weekly sales rate declined in both 2005 and 2006 (-5% in '05 and -27% in '06) post-holiday.

"While Apple does not release the financial details of the iTunes Store, the company has indicated that they run the store 'above break-even,'" he told clients. "The iTunes Store, therefore, is a supplement to the iPod as Apple's vehicle to monetize the free iTunes software."

Munster explained that the integration of iPod with the iTunes software along with some profitability from the iTunes Store represent the three ingredients of Apple's digital music ecosystem.

"We continue to believe the shift to online distribution of media is in its infancy," he said. "We estimate 5 percent of worldwide music sales were online in 2006."