Digital surge could follow iTunes in Mexico

Apple's share of smart-phone sales to hit 15% this year

An expected surge in smart-phone sales could bode well for the iTunes music store's belated entry into Latin America.

And that, industry observers hope, could help jump-start the region's mobile-centric digital music market.

Apple's Aug. 4 launch of the iTunes music store in Mexico, its first in Latin America, comes about a year after the dominant mobile carrier America Movil began offering the iPhone in Mexico. On July 31, the carrier rolled out the new iPhone 3GS in Mexico, Guatemala, El Salvador, the Dominican Republic, Colombia and Uruguay. The iPhone is also available in Brazil, Chile and Argentina.

Pyramid Research projects that Latin America's smart-phone market will surge to 30% of all regional handset sales in 2014 from just 3% in 2008, spurred by carriers looking to increase data revenue from customers.

Apple's share of overall smart-phone sales in the region should reach 15% in 2009, fueled by iPhone sales that should top 1 million this year, according to Pyramid. Most of those sales will come not from the iPhone 3GS but the older 3G model, which America Movil was subsidizing for free in Mexico with a two-year contract.

Apple doesn't release sales figures, but Pyramid senior analyst Omar Salvador says Mexico likely accounts for the largest share of iPhone sales in the region to date, because of its tendency to adopt U.S. trends and the device's early availability there. Salvador calls iTunes' Mexico music store "another step to reinforce the attractiveness of the iPhone in Mexico."

Given music-industry estimates that mobile sales accounted for more than 80% of digital music revenue in Latin America in 2008, over-the-air downloads will be crucial for the market's growth.

The iTunes store in Mexico went live with a home page featuring Mexican acts like Vicente Fernandez, Jesse & Joy and Paulina Rubio. The store also has apps and podcasts from Mexican media outlets El Universal and Reforma, as well as music releases by international acts like the Black Eyed Peas and Modest Mouse.

Most tracks are priced at 12 pesos (91 cents), while most albums are priced at 120 pesos ($9) and music videos 24 pesos ($1.83). In a market with low rates of credit card use, the sale of prepaid iTunes gift cards will be crucial to the store's success. Major retailers like Office Depot, Sanborns, El Palacio de Hierro and Mixup sell the cards in denominations of 200, 300 and 600 pesos.

Mixup, a music and DVD chain, launched its own MP3 store in May. While the brick-and-mortar retailer enjoys strong brand recognition in Mexico, iTunes Mexico boasts advantages of its own, including an easier-to-navigate design and a much larger catalog of music.

Ana Clara Ortiz, vp digital at Universal Music Latin America, notes that the continued popularity of the iPod in Mexico should give Apple a further edge. iTunes' music store in Mexico, combined with that of Mixup, will provide a way "to see if the online market wakes up," Ortiz says.

One of the biggest hurdles facing any digital retailer in Mexico is rampant piracy, which has stymied digital music sales. Total recorded-music revenue in Mexico plunged 22% in 2008, according to IFPI, the worldwide lobbying arm of the major labels. Digital sales, which accounted for 10.8% of the total, grew just 1.3% last year.

An Ipsos Media study in 2008 showed 58% of Mexican respondents reported having downloaded music online within the last three months, up from 42% in 2007. But the study also estimated that the number of illegally downloaded songs had doubled during the same period.

Apple vp Internet services Eddy Cue notes that iTunes has never launched in a country with an existing, successful download store.

"We want to compete with piracy," Cue says. "We think the majority of people are honest, and what they haven't had was a great, legal alternative."

Further south, Brazil would appear to be a promising market for an iTunes music store. Recorded-music revenue grew 8% in 2008, and digital sales accounted for 13.4% of overall sales, according to the IFPI. But industry sources say a more complicated system of clearing publishing rights in Brazil makes opening a new digital music store there more difficult in the short term.
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