Apple has jumped the gun on claims that iTunes Music Store is Europe's top music-download service, say analysts.
Jupiter analyst Mark Mulligan told Business Week: "The real test of iTunes' move into Europe will come in six-to-nine months. That's when Apple should have iPod's holiday-sales results – and that will be the thing to judge on whether real profits are possible."
Analysts note that the service has several things going for it, including the iPod. Needham & Co analyst Charles Wolf said: "The iPod is popular in Europe. About a third of iPod's $264 million in sales in the second quarter came from overseas, with the bulk of that from Europe."
However, there are challenges ahead for Apple. Business Week notes that there are a number of rival music services already established in Europe including OD2, and more completion is looming in the form of Sony and Virgin. Charles Wolf said: "Virgin has always been very customer-savvy. You can't rule them out."
Another hurdle is that Europe's digital-music market is "puny", says Jupiter Research, who value it at "about $10 million". In the US, sales of downloaded music are expected to top $150 million this year. "The online market in Europe is not suddenly going to lift off," said Mulligan.
One factor is a smaller percentage of European households own broadband connections, and another is that the illegal swapping of music files remains widespread in Europe.
"Like their US counterparts, many young Europeans don't want to pay for music. So far, the recording industry's music-piracy fighter in Europe, the IFPI or International Federation of the Phonographic Industries, has been more laissez-faire about these scofflaws. It is only just starting to ramp up its activities," says Mulligan.
Another barrier for Apple is that iTMS must reach a deal with Europe's independent labels. Mulligan said: "Some 40 per cent of the music sold in France is produced by domestic artists, and a large proportion of those artists are represented by independent labels."
Analysts indicate that as iTMS's costs are likely to be higher in Europe, it will have to sell more songs than in the US to make money.
Inside Digital Media president Phil Leigh said: "Apple had to set up three separate sites in Europe because music companies required iTunes to get separate licenses to do business in different countries.
"Any time your fixed costs are higher, your volume has to grow higher to break even. I think they will get there. It just may take longer."