Apple juiced over iTunes

Co. to add over 3,200 new songs, including Johnson & Bocelli

NEW YORK — Apple didn’t hand out any prizes Monday to its 1 millionth customer, but the computer manufacturer and the music business are stoked by the early success of Apple’s new iTunes Music Store.

Dramatically exceeding the record labels’ internal forecasts, Apple celebrated the sale of their millionth song less than a week after Wednesday’s debut of the store. Sales came as an early vindication to Apple insiders who insisted the company’s design and marketing savvy would succeed in selling digital music where others have failed.

“Hitting 1 million songs in less than a week was totally unexpected,” said Warner Music topper Roger Ames. “Apple has shown music fans, artists and the music industry as a whole that there really is a successful and easy way of legally distributing music over the Internet.”

Apple’s first-week perf also makes the computer maker’s rumored interest in acquiring Universal Music Group even less likely to bear fruit, since the Music Store is proving it can be successful without Apple having to own the content it offers.

“It’s a lot cheaper to be an aggregator than it is to be a creator,” said one insider. “There’s a whole lot less risk involved.”

For the moment, the labels are looking at revenue from the Music Store as found money — something the music industry could use a lot more of as it weathers a slump in CD sales and battles piracy on free services like Kazaa.

Apple hopes to keep the momentum going by adding more than 3,200 new tracks today to its existing catalog of 200,000 digitized songs. Work from songwriter Jack Johnson and tenor Andrea Bocelli, as well as the new release from Fleetwood Mac, “Say You Will,” are now in the Music Store.

Apple investors reacted positively, pushing the company’s share price up more than 11% to end the day at $16.09 — the stock’s best perf in nearly a month.

Critics warned that the results are very preliminary, and that the service will remain only a limited success until it expands its reach to include the 90% of computer users who use Microsoft’s Windows operating system.

Vast untapped market

P.J. McNealy, a digital-media analyst at research firm Gartner G2, says the 1 million downloads, worth about a dollar each, likely represent between 100,000 and 150,000 individual users. That’s substantial for an early rollout, but only a tiny sliver of the 100 million households in the U.S.

“Things will get a lot more interesting in the second half of the year, when they roll out a Windows-based version of the software,” he said. “But even then there’s a caveat, because the tracks will only play on an iPod,” whose current installed base is only about 700,000, he added.

The iPod situation appears to be changing rapidly. Apple said Monday it had already sold 20,000 units of a revamped version of the device, which bowed Wednesday along with the Music Store, and it has received orders for more than 110,000 of the pocket-size devices.

Peter Lowe, director of marketing for the iTunes software and the Music Store, said delays and early missteps in the course of developing legal digital-music services have left consumers impatient for a service that works.

“There’s a lot of pent-up demand for this kind of store, and there’s going to be a lot of sustained demand as the service rolls out,” he said. “Most people are willing to spend a reasonable amount of money for music online, and we feel like the past week has demonstrated that.”

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