Monday, April 02, 2007, 01:00 pm PT (04:00 pm ET)
DRM-free iTunes seen spurring demand for Apple's iPodsThe arrival of DRM-free music on Apple's iTunes Store will only serve to broaden the use of digital media players amongst consumers, likely boosting overall demand for the company's iPod line, one Wall Street analyst says.
Reacting to Apple's announcement Monday that it will soon begin selling music tracks from EMI without copy protection, PiperJaffray analyst Gene Munster advised investors to look out for an increase in iTunes music sales, explaining that the removal of DRM abolishes one more barrier to entry into the iTunes+iPod ecosystem.
"This effect could also result in more iPod sales as consumers have positive experiences with iTunes+iPod and the overall move to the digital music world gets easier," he wrote.
The analyst, who estimate that less than 5 percent of the music in the average iPod user's library includes music purchased from iTunes, said he believes the success of the iPod is dependent upon the total experience of the device and the music store, not the fact that iTunes music only plays on iPods.
"We believe DRM free music will have a positive impact on iPod demand given DRM free music should result in more usage of digital devices," he wrote. "The impact of increased iTunes downloads will outweigh the impact of some customers using non-iPod players with iTunes downloads."
Munster noted that there may be some short-term perception that the move could form a negative impact on iPod sales, as consumers will gain the ability play EMI's iTunes downloads on any digital music player. However, he said it's important to note that non-iPod MP3 players will not sync with iTunes the same way iPods do.
"Our belief is the success of the iPod is not because consumers are locked on the iTunes platform, but its success has been because of the total device and iTunes experience," he reiterated.
The PiperJaffray analyst maintains an Outperform rating and $124 price target on shares of Apple.
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