The battle for digital music dominance in Europe seems set to be a drawn-out campaign for all sides, analysts say.
Collectively, Europe is the world's largest music market, and competition to establish successful music services here relies on a multitude of factors, not least the provision of appropriate local content across territories.
While Apple hasn't yet found a compromise with Europe's independent labels, the company still hopes its iTunes Music Store can establish itself as a major player here. The company sold 1.5 million songs in Europe in its first week of business: on the flip-side, Apple hopes to drive iPod sales using its Music Store as a spearhead.
Needham & Co. analyst Charles Wolf estimates that Apple earns only a few cents from each downloaded song. Music industry sources suggest that some major labels have the company tied to a deal in which the company may even lose money on some song sales, though this has never been proven. Despite this, the service does help drive iPod sales.
iTunes sold 800,000 songs in its first week after launch last month – a figure that OD2 took months to achieve on its launch four years ago. These early signs of prosperity must stand the test of time – and an increasingly competitive market.
Jupiter Research analyst Mark Mulligan told MacNewsWorld: "The real test of iTunes Music Store's move into Europe will come in six to nine months". And the test won't be song sales, but iPod sales. iPod sales contributed around 14 per cent to Apple's second-quarter sales.
A third of iPod sales took place in Europe in the second quarter, and one in six iPods sold in Apple's first quarter sold in the UK.
Competition is heating up too; Napster and Sony have entered the market and OD2 has been acquired byu another US firm, Loudeye. Jeff Cavins, Loudeye's president and CEO thinks iTunes is "healthy" for the European market because it brings "a renewed sense of urgency among our customer base" to develop digital music and media sites, he said. Virgin is also preparing to launch its own service here.
As the market grows more competitive, analysts believe Apple will have to take steps to add interoperability – allowing users of other devices to use iTunes tracks, and allowing iPod owners to access music acquired form other services.
"There is going to be pressure for interoperability," said Wolf.