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Hell Hath No Fury Like a Macophile Scorned

Thursday, 14 Dec 2006 | 10:43 AM ET

So imagine the tempest stirred when Forrester Research analyst Josh Bernoff released a report saying -- Heaven forbid -- that sales of music on the Apple iTunes website were slowing. And not just a little, but by a staggering 58%!!

The background, of course, is that digital music transformed Apple into the entertainment and computer powerhouse it is today. iPod and iTunes together account for more revenue to Apple than the computer business that put the company on the map in the first place. Yet music is so incredibly good for Apple, that the halo effect from these devices has had a huge influence on Apple's computer sales.

So any news to the contrary on the popularity or success of the iPod and iTunes products is typically met with swift scorn by the Mac faithful. We in the business call it "getting flamed." Suggest iPod sales are slowing, or iTunes sales are slowing, or that there is any tarnish to the Apple luster, and you're met with a torrent of blog postings about your incompetence; emails about what a loser you are; and in the extreme cases, actual voicemails!

So imagine what poor Josh Bernoff is dealing with this week: Josh is insightful, helpful, and always ready with good comments and analysis on interesting stories. I have spoken to him many times.

In a report that seemed to gain momentum this week, even though it came out the week prior, he suggests that sales from Apple's iTunes online store are, well, slowing. But not plunging.

He writes that shoppers who buy an iPod only buy, on average, 20 songs from iTunes. That number swelled to 23 recently. And these numbers come from Apple itself.

Bernoff concludes, based on Apple's own data, that "new" iPod sales were slowing because consumers were merely trading up. That Apple wasn't expanding the iPod sales pie. And that consumers may be "tired" of the iTunes site with sales slowing because of it.

"This accounts for a little tarnish on the incredible iTunes success story," Bernoff writes.

But everyone in the media seized on his 58% figure. Dire predictions of gloomy days ahead torpedoed Apple share which had been up around 50% over the past six months.

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Bernoff now is backing away, and backing away big. His data was based on credit-card activity from 5,580 US households. Of those, only 181 homes bought something from iTunes. A tiny sample when you consider that in just a few years, Apple has sold well over a billion songs and something like 70 million iPods.

Bernoff now says in a blog posting: "With the number of transactions we counted it is simply not possible to draw this conclusion. Apple is not in trouble. It makes its money mostly from iPods, and iTunes is just a way to make that experience better.

"It's the music industry that has to worry, since the $1bn a year or so from iTunes globally does not nearly make up for even the drop in CD sales in the US, which are now down $2.5bn from where they were."

Wow! A far different conclusion. But a far different conclusion that isn't necessarily Bernoff's fault. The media is quick to build up, and then tear down, individuals and companies. Happens every day. And it may have happened here.

Bernoff does launch one final dig, writing: "Their unwillingness to comment on the record or off about anything they're working on or any industry results beyond the basic statistics fuels speculation, pro and con, from their supporters and detractors." But that just means we all need to be better sourced inside and outside the company.

It happens to easily and too quickly that we seize on nuggets in reports and don't question them. If someone else is willing to attach their name to research, and the research comes from a reputable source, as it did here, reporters run with it. But every Wall Street analyst I've talked to didn't just dispute the findings, but said every indicator was actually trending in the opposite direction.

This Forrester report was the classic case of telling "a" story, just not the "whole" story.

That message seems to be getting through. Apple shares erased all the losses they suffered from all this yesterday.

Questions? Comments? TechCheck@cnbc.com

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