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Originally published Wednesday, December 13, 2006 at 12:00 AM

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Report says iTunes sales took big dive in first half of this year

Apple Computer's iTunes music store suffered a 65 percent slump in sales during the first six months of the year, reversing almost two years...

Bloomberg News

Apple Computer's iTunes music store suffered a 65 percent slump in sales during the first six months of the year, reversing almost two years of gains, according to a Forrester Research report issued Tuesday. Apple shares fell 2.9 percent.

The number of iTunes transactions declined 58 percent between January and June of this year, while transaction size fell 17 percent, the market-research firm reported.

Apple spokesman Tom Neumayr said the report is "simply incorrect."

"iTunes won't save the music business, or Apple," analyst Josh Bernoff wrote in the Forrester report.

Forrester, which based its findings on analysis of 2,791 U.S. iTunes debit and credit purchases, said it is too soon to tell whether the decline is seasonal or if demand for digital music is falling.

Apple got $452 million in sales last quarter from music sold through iTunes as well as accessories for its market-dominating iPod device, the company reported in October.

Shares of Apple fell $2.61 to close at $86.14 Tuesday. Before Tuesday, the stock had gained 20 percent this year.

In 2005, iTunes sales dropped after Christmas before rising "significantly" in May of that year. That recovery didn't materialize this year, Forrester said.

Steve Lidberg, an analyst at Pacific Crest Securities, said in a note Tuesday he doesn't see a slowdown in digital music sales.

Lidberg, who is based in Portland and rates Apple "outperform," cited other data from researcher SoundScan that show weekly digital album sales have more than doubled to date.

The Forrester report also found that most music stored on iPods isn't purchased from iTunes. Apple sells about 20 iTunes songs for each iPod purchased, even though the devices can store hundreds or thousands of songs.

Many iTunes buyers purchase a few songs at a time, with the median transaction $2.97, the report found. One-third of all purchases cost $1.08 or less.

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The iTunes store had a profit in the quarter ended Sept. 30, according to Apple.

"Our view continues to be that selling music and TV shows and now movies helps us to sell iPods and accessories," Apple Chief Financial Officer Peter Oppenheimer told analysts Oct. 19.

Apple started iTunes in April 2003 to help broaden the iPod's appeal. The store offers more than 3.5 million songs, 250 TV shows, 9,000 music videos and 100 movies.

Apple has sold more than 1.5 billion songs through the site and said it sells more than 1 million videos a week.

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