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"We just completed the best quarter in our history and 2006 is off to a great start. We're confident with our strategy."
——Apple CFO Peter Oppenheimer

MUSIC TECH 2006: CHEERS FOR APPLE, FEARS OF A BUBBLE

Today’s Music Biz Is a Rowboat Being Tossed About in the Middle of a Massive Sea Change
Global digital music sales tripled to $1.1 billion last year, the IFPI revealed Thursday morning. This encouraging news comes a day after Apple reported the biggest quarter in its history, powered by the sale of 14 million iPods. But these positive notes are being hit at a moment when many fear that the current tech boom may culminate much as the last one did six years ago, with the bursting of a bubble. Thus, Apple shares dropped in after-hours trading predicated on the company’s conservative forecast for Q2.

Digital music, including ringtones, now accounts for 6% of total music sales, and this revenue stream was nonexistent before the iTunes Music Store opened its virtual doors in the spring of 2003. There are now 335 online music services, according to the latest figures, up from 50 two years ago.

Subscription services, paced by Yahoo Music, RealNetworks' Rhapsody and Napster, nearly doubled their bases last year, growing from 1.5 million to 2.8 million subscribers. Napster said yesterday that it has passed the half-million mark, a 100% increase.

Napster Chairman/CEO Chris Gorog was as ebullient as usual in making the official announcement: "Doubling our subscribers over the last twelve months demonstrates the mass-market potential of our music subscription model and the powerful appeal of Napster to music fans who want it all," he enthused. "With a track record of robust growth, exciting new developments in the pipeline and over $100 million on our balance sheet, we are extremely excited about the future of Napster."

Meanwhile, back in Cupertino, the revelations came one after another: Music sales now represent 59% of total sales at Apple, which claims 83% of the U.S. download market. Additionally, the company’s 135 retail stores, the techie equivalent of Disneyland in the iPod era, collectively generated north of $1 billion for the first time. Boosted by all this activity, Apple's share price more than doubled to an all-time high of nearly $14 billion.

Naturally, some analysts believe it will be difficult for Steve Jobs and his visionary posse to maintain the pace. "It's a consumer electronics product that is highly seasonal," Needham & Company’s Charles Wolf told The N.Y. Times. "We've also passed the inflection point in the iPod story. Growth is going to slow because the numbers are so large, but it's still going to grow."

"We just completed the best quarter in our history and 2006 is off to a great start," Apple CFO Peter Oppenheimer said in an interview with Forbes.com. "We're confident with our strategy."

So optimism is clearly in the air, much of it emanating from the bustling musical portion of the tech sector. But there’s another widespread digital activity at the moment—the crossing of fingers.

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