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Apple reveals drop in sales of iTunes music

The iTunes Store raked in more revenue overall in fiscal 2014 than in the previous year, but digital music sales have declined, according to Apple's annual report filed with the SEC.

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Screenshot by Lance Whitney/CNET

iTunes music sales took a dip over the past 12 months, according to Apple's latest regulatory filing.

In an 88-page annual report, filed Monday with the Securities and Exchange Commission, Apple said the iTunes Store overall raked in more revenue in fiscal year 2014 -- which ended September 27 -- than in fiscal year 2013, but noted that music sales have fallen.

"The iTunes Store generated a total of $10.2 billion in net sales during 2014 compared to $9.3 billion during 2013," Apple said. "Growth in net sales from the iTunes Store was driven by increases in revenue from app sales reflecting continued growth in the installed base of iOS devices and the expanded offerings of iOS Apps and related in-App purchases. This was partially offset by a decline in sales of digital music."

Apple didn't reveal specifics on how much digital music sales have declined. But on Friday, the Wall Street Journal cited "people familiar with the matter" who said that music sales at the iTunes Store have dropped 13 to 14 percent since January 1. The Journal pinned the blame on growing competition from cheap music, such as free videos and $10-per-month unlimited subscription plans.

In its regulatory filing, Apple also acknowledged competition from such rival services.

"The Company's digital content services have faced significant competition from other companies promoting their own digital music and content products and services, including those offering free peer-to-peer music and video services," Apple said in its filing.

In other words, why pay for digital albums and songs when you can listen to them for free or on the cheap through such services as Pandora and Spotify?

In its favor, Apple touted the integration of its various products and services, "including the hardware (iPhone, iPad, Mac and iPod), software (iOS, OS X and iTunes), online services and distribution of digital content and applications (iTunes Store, App Store, iBooks Store and Mac App Store)." But the company said its competitors "have substantial resources and may be able to provide such products and services at little or no profit or even at a loss to compete with the Company's offerings."

Apple is far from alone.

A drop in digital music sales is hitting the industry as a whole. On Monday, The Guardian cited one example of mobile app Shazam, which has witnessed the number of songs purchased drop from 1 million in March 2013 to 400,000 this past September. The Guardian also cited an August report from Midia Research, which found in a nutshell that streaming users are buying fewer digital albums.

One weapon that Apple is likely to use to try to beat back the competition is Beats. Some industry watchers wondered why Apple would pay $3 billion for Beats when the deal was announced in May. But the Journal suggests that Apple plans to rebuild Beats Music and integrate it with iTunes next year to offer a stronger streaming service. Apple took its first stab at a streaming music service last year with the debut of iTunes Radio.

Apple did not immediately respond to CNET's request for comment.