Apple Whistles a Happy 3 Billion iTunes - TheStreet

Apple Whistles a Happy 3 Billion iTunes

More than 3 billion songs have been bought and downloaded from the iTunes Store, Apple says.
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Apple

(AAPL) - Get Report

has passed another milestone in its continued dominance of the digital music world, a plank from which it hopes to reach buyers of its Mac computers and iPhone handsets.

On Tuesday, the company announced it has sold over 3 billion songs from its iTunes online music store. Apple's a la carte model has proven to be the most popular with consumers who generally prefer to pay for songs individually, rather than paying subscription fees to services such as

Napster

(NAPS)

and

Rhapsody

.

Shares of Apple lost 4.6% to $136.85 midday.

The iTunes catalog contains over 5 million songs, 550 television shows and 500 movies.

Perhaps most importantly, Apple offers not just the downloading service but also the hardware for managing music collections. Its wildly popular iPod gives it an advantage over longtime rivals like Napster, as well as newcomers

Amazon.com

(AMZN) - Get Report

that only sell the downloading service, but not the listening device.

"Apple controls the software on PCs, they have the downloading service and they have device all under their control," said Gartner analyst Mike McGuire. "They've made it brain-dead simple to buy, download and move content around onto iPods, computers and now iPhones."

Analysts refer to this as the digital music "ecosystem," which comprises the hardware, software and downloading service. Each plays a role in giving Apple a leading share of the digital music world, and a growing share of the entire music market that comprises compact discs as well as digital downloads.

In the first quarter of the year, Apple's iTunes accounted for a greater amount of all music sales than did Amazon and

Target

(TGT) - Get Report

, according to market research firm NPD Group.

NPD considered 12 music downloads equivalent to sales of a single CD. This put Apple behind

Wal-Mart

(WMT) - Get Report

and

Best Buy

(BBY) - Get Report

.

Having a robust online music business is critical to keeping Apple rooted to its growth trajectory. In April, the company announced that had sold over 100 million iPods. This implies a wide base of iTunes users who may begin downloading music, movies, TV shows and podcasts to other Apple devices like its iPhone, which Chief Executive Steve Jobs has billed as "the best iPod we've ever made."

After Apple released its third-quarter earnings, analysts roundly cheered the iPod business as a stable leg of growth. But its contribution shows signs of waning. The average selling price of an iPod held steady at $160 from the previous quarter, but has fallen over years as sales of cheaper models outpaced sales of the pricier ones.

Last week, Apple said its

third-quarter sales of iPods rose only 5%, although the number of units purchase jumped 21%.

Sales of iPods constituted 29% of revenue in the third-quarter, down from 34% a year earlier.

The iPhone is Apple's best bet to raise the average selling price of its portable hardware products. The company said that the $599 iPhones sold at a greater clip than the $499 models, which have less memory for digital content.

The base of people using iTunes and iPods is also a critical source of potential buyers for Apple's Mac computers. Analysts and investors have touted the iPod's ability to introduce consumers to Macs, which hold just about 6% market share in the U.S. and about 3% globally.

Mac sales leapt nearly 36% in the third quarter and accounted for 47% of total revenue, up from 43% a year earlier.

Many analysts refer to this as the "iPod halo effect," but also recognize that Macs have a chance to gain market share as the trend in user generated video content picks up. Macs are considered to be more user-friendly for creating and editing digital home movies, photos and other content exchanged over the Internet or posted to blogs.

Fati Naraghi, director of technology research at mutual fund manager Newton Investment Management, described Apple as a "long-term play on the growth in consumption and production of video content." Newton holds Apple shares in some funds.