TMO Reports - Analyst's High School Survey Sees Continued iPod Domination

by , 4:50 PM EDT, October 3rd, 2006

Piper Jaffray analyst Gene Munster on Tuesday released the results of his 12th bi-annual high school teen survey, which revealed that 79% of those who own an MP3 player possess an iPod and 76% of those who plan on buying an MP3 player in the next 12 months expect to purchase an iPod. That first figure was up two points from the spring survey, while the second was down eight points but still significantly ahead of number two Sony at 8%.

Among the 985 nationwide students surveyed, whose average age was 16.4, 72% of them own an MP3 player, down from 76% six months ago. Sony was number two at 5%, followed by SanDisk at 3% and Dell, iRiver, and Creative at 2% each, with "Other" comprising 7%. Dell, SanDisk, and Creative followed Sony in the "What MP3 player are you planning to buy in the next 12 months?" at 3% each, with iRiver at 1% and "Other" at 6%. Dell, iRiver, and SanDisk were all at 0% six month ago.

Of the 79% of respondents who said they download music from the Internet, 72% use peer-to-peer (P2P) file-sharing networks, up from 65% during the previous survey. Among those who buy their music online, 91% use iTunes, a 20-point jump from six months ago and likely "a result of the increasing variety of content on iTunes," Mr. Munster wrote. Napster was second with 3% and RealNetworks/Rhapsody and Yahoo! Music "essentially fell off the map," he explained.

Among those who use P2P services, only 17% were interested in paying US$0.99 per song, while 35% would pay $15 a month for a subscription. "While Apple is dominating the online music market," the analyst said, "the opportunity for the music industry overall is still largely unpenetrated. Given the majority of teens continue to download music via 'illegal' channels, we believe the industry needs to continue to work to convert pirates into paying customers."

Looking ahead to future possible Apple product categories, Mr. Munster found that 74% of the students surveyed would consider buying an iTunes-enabled cell phone, up from 70% six months ago. Among those who were interested, resistance to higher prices had eroded a little: 14% would buy one if it was under $100 (24% last time), 43% preferred $100 to $199 (39%), 34% cited the $200 to $300 price range (37%), and 9% were willing to pay over $300 (0%).

Mr. Munster concluded: "Apple continues to dominate the MP3 player and online music markets, despite new competitors constantly entering the market. We believe that winning over the teen demographic is critical to continued long-term growth and Apple is clearly in the lead in this market segment."

The analyst retained his "Outperform" rating on Apple's stock, with a $99 price target. At the close of trading on Tuesday, the company's shares were selling for $74.08, down 1.04% for the day.

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