Apple Sings a Happy iTune

Apple Computer celebrated the first year of its online music store Wednesday with an upgrade to its desktop music player and a change to its personal usage rights.

The Cupertino, Calif.-based computer maker said the iTunes desktop player version 4.5 for Mac and Windows is available as a free download. The company also plans to increase the number of authorized computers from three to five machines but decreasing the number of times users can burn a single playlist from 10 to seven times. Apple said it now has more than 700,000 songs from all five major music companies and over 450 independent music labels to its credit.

CEO Steve Jobs said he was pleased with the results of the first year with more than 70 percent market share of legal downloads for singles and albums. Apple said its iTunes customers are currently purchasing 2.7 million songs per week.

“We’re thrilled with the results in one year. iTunes has exceeded our wildest expectations,” Jobs said during a conference call with reporters. “A year ago, if someone had predicted 70 million songs sold, they would have been laughed out of the building.”

But while Apple is king of the hill when it comes to market share and mind share, the Macintosh maker may have trouble meeting its goals. During the Windows version launch last October, Jobs predicted the online store would sell 100 million songs in 12 months. Apple said Wednesday that it has only reached the 70 million mark but should be able to sell the remaining 30 million in the next few months if it continues its current sales trends. A celebrated promotion in February and March with soft drink maker Pepsi helped prime the pump by giving away 100 million songs. The promotion ends at the end of April. Apple declined to say how many of the yellow twist caps had been redeemed.

Jobs said Apple is standing firm on its 99 cents per song model but noted that the price of complete albums would probably drop from the $9.99 average. He also said the music labels were very happy with Apple’s progress and are straying away from subscription models, which may be troublesome for Microsoft’s upcoming Janus technology.

“People want to own music, not rent it,” Jobs said. “Subscriptions make you pay over and over.”

In an effort to win over more of the Windows crowd, Jobs also said that the updated iTunes player would offer automatic conversion from Windows Media Audio (WMA) to Advanced Audio Coding (AAC). The ability allows users to convert an entire music library into iTunes and syncing it onto AAC players like Apple’s iPod.

Jobs also noted that sales should pick up once HP ships their estimated 8 million copies of iTunes on their desktops by the end of the year.

Other enticements for the third-generation iTunes player include “iMix” (playlist publishing tool); “Party Shuffle” (chooses songs from a music library); Radio Charts from more than 1,000 radio stations; and new Music Video and Movie Trailer sections with links to buy songs from the soundtrack or audio books related to the movie.

The business model certainly seems to be working as Jobs revealed that the iTunes Music Store showed a small profit this past quarter. That would be the one where Apple said it shipped more iPods (807 thousand) than Macintosh units (749 thousand) for the first time in its history.

“We have to stay focused on the fact that people are buying iPods for music,” Jobs said.

Apple also seems to have also hit the mark when it comes to the capacity of the player. Last week, a JupiterResearch online consumer survey found 90 percent of consumers who maintain a music collection on their PC have no more than 1,000 songs in their collection and that 77 percent of consumers interested in purchasing a portable media player would want a portable music player with a capacity of 1,000 songs.

The report also concluded that about 45 percent of online users interested in buying a portable media device are interested in video functionality on that device. This interest will ultimately create market demand for larger capacity players that can hold more than 1,000 songs enabling users to store video as well as music. (JupiterResearch and this publication are owned by the same parent company.)

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