Business Matters: How Sagging PC Sales Will Impact the Music Business

The PC is taking a beating this week.

IDC reported that worldwide PC shipments fell nearly 14% in the first quarter and posted the fourth-straight year-over-year decline. Gartner released similarly gloomy numbers for PC shipments. Three equity analysts cut their ratings on Microsoft this week.

Sagging PC sales will have a definite impact on music and entertainment companies. Time spent on tablets and mobile phones -- and the apps built for them -- will increase as time spent on PCs decrease. These trends will change the power structure in music and entertainment. Apple, Amazon and other top tablet makers stand to benefit while PC-heavy companies like Microsoft, HP and Dell will need to transform their product offerings and adjust to the marketplace.
The news is especially bad for Microsoft, which launched the Xbox Music service in October. The on-demand music service, basically an evolution of the Zune music service, is included in the Windows 8 operating system and would have received a boost if sales were strong. Weak sales mean fewer people being funneled into the service. Research suggests adoption has been weak. According to NPD Group, just 2% of Americans from ages 13 to 35 used Xbox Music in the fourth quarter of 2012. That's equal to the 2% usage achieved by Slacker, and TuneIn but well below the Pandora at 39%, iHeartRadio at 11% and the free version of Spotify at 9%.
Some music services are likely to fare better than others in the transition to tablets. A mobile-first company such as Pandora is well situated for a world with more tablets and smartphones, although the company needs to improve how it monetizes mobile listening. On-demand services that charge users to listen on mobile devices stand to benefit, too. According to one digital executive, consumers have been conditioned to get music for free on PCs. As a result, they are more apt to pay for a subscription for use on a tablet than on a PC.

Goldman Sachs, Normura and BGC analysts cut their ratings on Microsoft in the wake of the news of weak PC shipments, helping send Microsoft shares down over 4% on Thursday. Shares of Dell were down more than 1%. Shares of computer manufacturers Hewlett-Packard and Lenovo were down 6% and 7%, respectively, after the IDC report said Hewlett-Packard shipments were down more than 23% in the first quarter and Lenovo shipments were flat. Apple PCs fared better than the overall U.S. market but still face competition from iPad tablets. Shares of Apple were down less than 1%.
The worldwide PC market last posted a year-over-year gain in the first quarter of 2012. Since then, the annual declines have become progressively deeper as PCs shipments have been hit hard by rising tablet and smartphone sales. Recent innovations like ultrabooks and the Windows 8 operating system have not provided a boost. In fact, IDC believes Windows 8 has “slowed the market” because changes to the interface have confused consumers.


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