ITunes on top, but entertainment landscape's changing

When Apple launched its iTunes music store a decade ago amid the ashes of Napster, the music industry -- reeling from the effects of online piracy -- was anxious to see how the new music service would shake out.

"The sky was falling, and iTunes provided a place where we were going to monetize music and, in theory, stem the tide of piracy. So it was certainly a solution for the time," said Michael McDonald, who co-founded ATO Records with Dave Matthews.

The iTunes music store became much more than a solution; it changed how we consume music and access entertainment. It's not only music's biggest retailer, it also dominates the digital video market, capturing 67 percent of the TV-show sale market and 65 percent of the movie sale market, according to NPD Group, the Port Washington-based market research company. Its apps are the most profitable, it has expanded to books and magazines, and it is now available in 119 countries. Last week iTunes posted a record $2.4 billion in revenue for the first quarter.

But as iTunes celebrates its 10- year mark, it faces renewed scrutiny on how it will continue to dominate in the next decade -- or whether it can. With competition from subscription services like Spotify and other services like Amazon.com, Netflix, Hulu and others, iTunes will likely need to reinvent itself to remain at the top of the digital entertainment perch.

At first only available to Mac users, iTunes debuted two years after Apple's groundbreaking iPod. With a catalog of 200,000 songs -- compared with tens and tens of millions of songs available today -- iTunes entered an industry being upended by illegal downloading.

Still, there were more than grumbles from music labels when Apple co-founder Steve Jobs set parameters making all songs available at a cap of 99 cents (today songs can cost up to $1.29) and giving listeners more control of what they could do with music.

"Our message . . . was the only way to beat piracy wasn't lawsuits or TV ads or anything, but to actually offer what was available through piracy" and people would pay for it, said Apple Inc.'s Eddy Cue, senior vice president of Internet software and services.

"To me, it's been one of the biggest assets to the music business in the last 10 years, but you'll hear from the labels that Steve Jobs ruined the music business," he said.

While digital sales rise, album sales have decreased and the industry's profits have continued to drop over the decade. The new landscape also includes the growing popularity of services like Spotify and Rdio, where listeners can stream music for free and can pay a set price to listen and collect songs. Industry watchers have heard rumors that an iRadio could be launched that would be something like Pandora, the popular Internet radio site.

Cue refused to comment on the speculation. He said users still favor the iTunes model compared with subscription services.

A premium subscription "costs $10 a month, that's $120 a year, and most average music customers don't spend that kind of money," he said. "If you buy it on ownership, you own it, and [with] a subscription model, your subscription never ends if you want to keep listening to it, so you're paying that $10 or more for life."

But McDonald believes subscription services may become the standard. For younger consumers "the idea of ownership in the way that we thought about it is irrelevant . . . they're just consuming content."