Paid-for media beats ad-supported in downturn

Report: Apple's iTunes leads digital-media profit surge

By Danny King -- Video Business, 3/31/2009

MARCH 31 | Paid-for media content such as downloads from Apple's iTunes will withstand the global economic downturn better than advertising-supported video and music services, according to a report released earlier this month.

Although worldwide revenue from digital media sales will slow this year, it will still grow as much as 9% from last year, when it surged 21% from 2007, consultant Strategy Analytics said in a study.

Led by iTunes, which a year ago overtook Wal-Mart as the largest U.S. music retailer, the world's 27 biggest digital-media companies boosted 2008 earnings by 20% to $74 billion, according to Strategy Analytics. In January, Apple said revenue from music-related products and services, which include iTunes sales, increased 25% to $1.01 billion for the quarter ended Dec. 27 and accounted for 9.9% of the company's revenue, up from 8.4% a year earlier.

Companies with an emphasis on paid-for media "performed much better than most of the companies focusing on online advertising," Martin Olausson, director of digital media research at Strategy Analytics, said in a statement. The earnings results "could be an early indicator that we are approaching a watershed moment in the nascent digital-media market and that more focus will be put on consumer paid-for online media in the difficult years ahead."

Although ad-supported digital-media Web sites such as Hulu have experienced a surge in viewership—ComScore reported last week that Hulu viewership in February jumped 42% from January—companies such as Netflix, Blockbuster and Amazon.com have followed Apple's lead by staking much of their future growth from content sales in the expansion of both the inventory of digitally delivered movie and television titles and electronic components capable of playing them.