In a research note released via Fortune today, Morgan Stanley analyst Katy Huberty notes that iTunes users spent an average of US$3.29 on content purchases last quarter, which represents a 24% year-on-year decline. This, however, will be more than made up for when the App Store picks up the slack at the end of the year.
Last quarter, each of Apple’s (AAPL) iTunes accounts spent an average of $3.29, down 24% year over year. “At a high level,” Huberty writes, “this raises concerns about Apple’s ability to monetize the new base of emerging market customers.”
Huberty notes that competitors such as Spotify and Pandora have been wrestling customers away from iTunes as consumer preferences shift from music downloading towards streaming. Apple, however, has a large untapped gold mine in the form of its 800 million iTunes Store accounts, most of them attached to a credit card.
The analyst cites two ways in which Apple could potentially utilise its “unheralded resources”:
Streaming music: Press reports… suggest Apple is considering the purchase of Beats Electronics, which would give Apple an accessories business focused on headphones and a music streaming service. Apple has not commented and we have no knowledge of any pending deals. However, a subscription music service — whether organically built or acquired — is a logical extension of iTunes.
Mobile payments: While there is always the possibility Apple adds mobile payments purely as a vehicle to increase customer loyalty and sell more devices, we believe it’s more likely to become a revenue generating service. We believe Apple can generate revenue through (1) advertisements, (2) subscription fees, and/or (3) transaction fees.
It has been widely reported that Apple is looking to acquire Beats Electronics for its Beats Music streaming service, albeit at a lower valuation due to the service’s relatively smaller subscriber base as compared to its competitors.