Technology | Media | Telecommunications

Wednesday, October 08, 2008

Strong Gains in the U.S. Digital Music Market

According to an Ipsos study, one year following its launch, Amazon.com Music has made a phenomenal first showing. Meanwhile, Rhapsody's increased focus on advertising and partnership appears to be paying off.

But neither development has slowed iTunes, with the site continuing to gain dedicated users who perceive it as the best fee-based digital music destination.

Awareness and use were steady among most dominant brands this year, but did increase for three top competitors while declining among many lesser-known players.

- iTunes continued to grow in terms of awareness, usage, familiarity, and best brand mentions.

- Amazon had a strong first year, with initial awareness, usage, favorability and best brand ratings comparable to any of the top brands after iTunes. Moreover, Amazon actually matched iTunes in user satisfaction.

- In perhaps the most significant development this year, however, Rhapsody gained in both aided and unaided awareness, usage and favorability. Although some of this growth may have been trickle-down from growth of digital music, overall, only iTunes and Rhapsody increased in these measures.

This suggests that Rhapsody's growth was not merely a reflection of market-level changes, but a direct result of its redoubled advertising efforts, its commitment to broad partnerships such as those with MTV Networks and Verizon Wireless and the fact that the streaming service competes in a niche alongside rather than in direct competition with iTunes.

"iTunes dominates this market," says Karl Joyce, lead author of the Ipsos study, "but that by no means suggests that there isn't room for innovative competitors with differentiated offerings. This is precisely who, according to our research, consumers are paying attention to and rewarding with their patronage."

Amazon -- unique for offering DRM-free downloads from the catalogs of not one, but all four majors -- has done quite well in its first year, easily establishing a place for itself among the other top brands operating in the iTunes shadow.

And then there is the story of Rhapsody. They are a success story in how to build a brand's power through increased awareness. Yet despite this strengthening among key competitors, the iTunes dominance remains unchecked.

The reason iTunes brand strength has not weakened in light of increasing competitive pressure is that, during this same time frame, consumers became more demanding of the digital music services they use.

Good sound quality, variety, and being a reputable brand grew significantly in importance versus both of the past two years. As a result of this, lesser-known brands who fail to add unique value and whose offerings are limited are beginning to lose out in favor of larger, more robust services able to meet all of these consumer demands.