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Why iTunes is dying

As the iTunes Store celebrates its 10th anniversary, it's time to consider how it'll do in the next 10 years.

By Open Source Community on Mon, 04/29/13 - 2:16pm.

This Sunday was the 10th birthday of the iTunes Store, which enabled content providers to sell to consumers who had little trouble getting that same content for free. But, in the process, Apple’s iTunes Store has set the table for the rise of several other competitive services, which will bring its demise.

The appeal of the iTunes store, at least in 2003, was its legitimacy. Consumers at the time were inundated with piracy options, from Napster to LimeWire to the many browser-based options available. Until iTunes came along, these options were successful. In March 2011, just a few months after LimeWire was shut down, the Recording Industry Association of America (RIAA) filed a lawsuit claiming LimeWire owed the organization up to $150,000 for every download of 11,000 specific songs, which added up to $75 trillion. A judge dismissed that request, calling it "absurd," but the point was clear – consumers had cost record labels a lot of money through piracy, and were eager and willing to learn new systems that made content easier and cheaper to access.

RELATED: 10 years of the iTunes Store

So, Apple provided a technological alternative. The iTunes store gave users a pretty interface and a simple way to buy content on their own terms – individual tracks for 99 cents, albums for $10, movie rentals for $5, etc. Along with the iPod, Apple basically set the path for consumers to migrate away from piracy and toward a more mutually beneficial relationship. Especially in the face of internet piracy, Apple reaching the 25 billion song and 40 billion app download milestones prior to iTunes’ 10th anniversary is extremely impressive.

Moving ahead, though, the iTunes Store is facing a bleak outlook.

Currently, iTunes’ share of online music sales stands at 63%, its lowest figure since 2006 and a steep drop from its peak of 69% in 2010, market researchers at NPD Group recently told Businessweek.

The reason? Just as iTunes was the bellwether for consumers who needed a better alternative to piracy, new online streaming services are showing consumers just how outdated the iTunes Store really is.

Spotify is one strong example of an iTunes killer. The stream-only service has seen its total user base double from 10 million in September 2010 to 20 million by December 2012. Even more encouraging for the service is its steady rise in paid subscribers, from roughly 2.5 million in 2010 to 5 million by the end of 2012.

But it’s not the only one. Netflix has been on fire lately, surviving a massive PR disaster in 2011 to amass 33 million subscribers. Now the company is creating its own critically acclaimed programming while resurrecting high-demand titles that TV networks failed to capitalize on, which will only draw more holdouts into its subscriber base.

Then there’s HBO Go, Hulu Plus, Amazon Instant Video, Rdio, Rhapsody, Pandora, Grooveshark, and even a Yahoo service that has seen success streaming original web programming, among others I’m sure I’ve overlooked.

And what has Apple done as these competitors have emerged? The company is rumored to be close to an agreement with Warner Music and Universal Music Group on a digital music streaming service, CNET reports. So far, though, progress on this project has not moved beyond the rumor stage.