ITunes Store Gets Old - So What Will Apple Do?

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Headphones next to a black iPod on a desk -Title:   Headphones and iPodCaption:  Headphones next to a black iPod on a deskC
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It's been 11 years since Apple (AAPL) revolutionized the digital music industry by rolling out the iTunes Music Store, but now the tune is fading out.

Billboard reports that Apple is considering a major overhaul of its online storefront as a response to sluggish download sales and problematic market share trends.

Label executives claim that iTunes download sales have fallen 15 percent over the past year. One indie label tells Billboard that Apple's online store has gone from accounting for 70 percent of its sales in 2012 to just 50 percent now.

The Day the Music (Download) Died

Folks aren't buying music anymore. CD sales peaked more than a decade ago, and downloads seem to have topped out a few years ago. Fans are still passionate about favorite artists, but they embrace premium and ad-supported streaming services over actual ownership. In this age of growing mobile connectivity, why buy a song when you can have access to millions of tunes served off the cloud?

Spotify has lined up millions of subscribers worldwide, paying $10 a month for on-demand access to its growing catalog. Penny pinchers can settle for Pandora Media (P) where they can't pick out specific tracks to hear, but they do get customized playlists based on their preferences. There are 75.3 million active Pandora listeners, and 3.3 million of those pay $4 a month for ad-free access with broader freedom to skip through the tracks you don't want to hear. And people use YouTube as a video jukebox.

Apple last year tried to make up for lost time by rolling out its own streaming platform, but record execs tell Billboard that less than 2 percent of iTunes Radio users are going on to buy music.

The Androids Have Landed

Apple's success with its iTunes Music Store came when it was the category leader. No portable media player ever challenged the iPod for supremacy. The iPhone and then the iPad went on to lead the consumer smartphone and tablet categories, respectively.

Times have changed. Google's (GOOG) Android has been the market leader for years, and more recently we saw Apple's iPad lose the top spot to the growing assortment of Android tablets.

Android, according to industry tracker Gartner, now accounts for 38 percent of all devices shipped worldwide last year. Apple's iOS is down a little more than 10 percent.

Will Apple introduce iTunes for Android? After making a splash with the ad-supported iTunes Radio that is similar to Pandora, is the next step to take on Spotify with a premium on-demand service of its own? Others speculate that it will use its thinning clout with the record labels to demand exclusive content so music fans would have no choice but to go through iTunes. Yet that's something that will be a lot easier to accomplish if iTunes expands to Android devices first. Apple decline to comment to Billboard.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (C shares) and Pandora Media. The Motley Fool owns shares of Apple, Google (C shares) and Pandora Media.


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