How Much Does Apple Make At The iTunes Store: Here's An Answer.

[MacsRGood4U]

From Macworld UK:

iTunes 'will become Net-songs king'

By Jonny Evans

Apple's iTunes Music Store could capture 20 per cent of the US paid-music download market, claims Needham's analyst Charles Wolf in a report this week.

Wolf believes Apple could generate annual revenues of $600 million through its store, and that this figure could increase. He describes the Store as "providing an arguably superior customer experience."

His figures represent Apple's potential yield from porting its service to Windows. The store's sales have settled to about 500,000 per week. "This demand appears to be significantly higher than Apple or the labels anticipated," he says.

Wolf advises: "At a profit of less than ten cents per song, the Music Store does not represent a major income opportunity for Apple. Pull-through sales of the iPod portable music player is likely to represent a far larger one, in our opinion."

His report – which claims that the market for unauthorized downloads now exceeds retail music sales – suggests that Apple's dollar-per-download model could capture around 16 per cent of the free file sharing market.

"This translates into $2.9 billion incremental revenues for the US music industry, equivalent to over a 20 per cent increase in annual revenues," he wote.

The analyst takes a look at the economics of the service, which he estimates earns Apple between five and ten cents per song, or $25 million in annual revenues and $2.5 million in annual operating income.

On a 99 cent single, Apple pays about $0.65, he claims, and adds: "Apple incurs three variable expenses in delivering songs. One is the cost of servers. A second expense is bandwidth," he says.

The third major expense for Apple is credit card charges. Credit card companies charge 25 cents for each transaction plus 2-3 per cent of the amount charged.

Because 46 per cent of music sold through the store are albums (at $9.99), and because singles buyers tend to buy multiple tracks in each purchase session, and because Apple combines individual transactions made each day before recording transactions with the credit card companies, credit card charges are kept low, Wolf says.

"Apple receives some price breaks from the credit card companies because of the sales volumes it generates," he adds.

iPod sales also benefit from Apple's music strategy. Releasing a Windows version of the service means: "Apple will offer music management software for portable music players that is arguably the best in the market." Sales of Windows version iPods now exceed those of the Mac version, Wolf reveals, "with the difference continuing to grow,"

The analyst estimates that Apple's annual revenue from the store once it releases a Windows version will be around $600 million with operating income of approximately $60 million.

"If we've erred on this assessment, it's probably on the low side with respect to possible revenues but on the high side with respect to the margin that Apple is likely to earn," he writes.

Apple closed at a 52-week high last night – $20.90 per share.

[Aquatic]

Go Windows iTunes go!

[hmurchison]

So how much is iTunes PC going to cost me? How about $29 with 15 prepaid downloads?

[MacsRGood4U]

So how much is iTunes PC going to cost me? How about $29 with 15 prepaid downloads?

Apple will most likely offer the software for free - just as they provide Quicktime downloads for PC users. (I assume you're kidding).

[bunge]

Originally posted by MacsRGood4U
Apple will most likely offer the software for free - just as they provide Quicktime downloads for PC users. (I assume you're kidding).

I've been struggling with this. Quicktime isn't free if you want the 'pro' features. iTunes might be free with an iPod, but cheap elsewhere. I'm not sure. It might just be free too, but if Apple charges for it they could also license it with other players and programs. There was a rumor that AOL was going to use it for their music player.

[hmurchison]

Originally posted by MacsRGood4U
Apple will most likely offer the software for free - just as they provide Quicktime downloads for PC users. (I assume you're kidding).

No, I'm not kidding. I used to think that it made total sense to ship it free but then something just said "Apple will probably charge something". I think Apple may want to avoid being seen as too agressive considering companies like Musicmatch charge. Apple could receive negative press for giving away iTunes PC and hurting PC companies charging money. I guess it could go either way.

[applenut]

you don't charge for the software that allows people to order music from you.

[MacsRGood4U]

Apple, as Fred Anderson stated in the analyst meeting, believes iTunes can be a Trojan Horse. It means more potential sales of iPods and eventually the possibilty of switching completely to the Mac platform. Because of that I believe Apple will not charge.

[Eugene]

Originally posted by hmurchison
No, I'm not kidding. I used to think that it made total sense to ship it free but then something just said "Apple will probably charge something". I think Apple may want to avoid being seen as too agressive considering companies like Musicmatch charge. Apple could receive negative press for giving away iTunes PC and hurting PC companies charging money. I guess it could go either way.

A lot of Windows people really, really, really want a Windows version of iTunes even without the iTMS. If you build it they will come...with the iTMS just sitting there, ready to be tried.

We're talking about 95/100 vs <3/100 out of every PC users out there. There's no way in hell Apple would squander the opportunity to tap the sheer volume of the market by placing a $30 price tag on iTunes.

[Powerdoc]

Originally posted by applenut
you don't charge for the software that allows people to order music from you.

You are right at 100 %. Windows i tune wil be given for free.

[MacsRGood4U]

I think it would be a great idea if Apple pressed zillions of CDs for free distribution in CompUSA, Best Buy etc. for iTunes. The disc could contain both PeeCee and Mac versions and possibly a nice promo for the Mac platform (not a guy blowing up his house but a run down on all the iApps). Anyway, just an thought.

[Placebo]

A dime a song, in my opinion, is a really cushy profit for Apple. Not many items have a 10% margin.

[CodeWarrior]

Give away the software for free. I'm guessing iTunes for Windows XP will require QuickTime or bundle QuickTime with it. Include commercials for the iPod and the whole product catalog. This increases QuickTime's installation rate plus shows off your other products. It's a great way to have them look at your stuff.

Plus you don't want to charge people for software they are going to use to buy stuff from you.

Or they could just remove the MP3 & AAC encoders and make the software only work as a front-end to the iTunes Music Store. That might cut down the costs for the encoders. Make the full version an upgrade for 19.95 with 5 free downloads from the ITMS. iPod owners get it for free with purchase.

[Jacob Wootten]

What about those of us who cross platform? I have my wonderful little iBook with iTunes and iTMS. But now I want it on my crappy HP Pavilion, but none the less I still want it.

[Anders]

Originally posted by MacsRGood4U
I think it would be a great idea if Apple pressed zillions of CDs for free distribution in CompUSA, Best Buy etc. for iTunes. The disc could contain both PeeCee and Mac versions and possibly a nice promo for the Mac platform (not a guy blowing up his house but a run down on all the iApps). Anyway, just an thought.

It has surfaced before: A promo CD that gives an introduction to X and the hardware in a way a commercial could never do.

But iTunesPC makes this idea 1000% better. Bringing the store directly to the customer. No start tax, not even the inconvienience of downloading it. And the OOB experience has to be as good as when we buy their hardware. Just insert the cdand then click the icon and iTunes does the rest. First add all MP3s on the harddrive to the library and then take him directly to the store.

Give it away with all newspapers the first Sunday the month its introduced.

[mattyj]

Many PC users I know want, practically need iTunes... Compared to Windows Media PLayer, iTunes is in several leagues above.

[MacsRGood4U]

From Mac Daily News:

Industry sources and analysts said other competitors are also keen to launch download services before Apple introduces its promised Windows version of iTunes later this year. Analysts expect Apple to launch that expanded service by Thanksgiving to spur holiday sales of its popular iPod digital music player.

[Eugene]

Originally posted by CodeWarrior

Or they could just remove the MP3 & AAC encoders and make the software only work as a front-end to the iTunes Music Store. That might cut down the costs for the encoders. Make the full version an upgrade for 19.95 with 5 free downloads from the ITMS. iPod owners get it for free with purchase.

No, no, no, no, no, no, no! It has to be absolutely free.

- Pirating is more rampant in the Windows world, so making the portion that is easy to crack a paid-for addition is WHACK. So you make more people steal the software and fewer honest people actually buy it.

- MPEG-4 does cost money to license per encoder and decoder, but it's capped at $1M/year for each. Apple has been swallowing this cost already so that's not a big deal.

There's NO justification for adding a pricetag to iTunes in its current form.

[BuonRotto]

Learn from MS. As Scott McNealy has said repeatedly, the first hit is always free with MS. It's worked well for them, I would hope that Apple has learned this lesson too. (Some might point to .Mac as proof!)

[Placebo]

I think that Apple needs some interactive Flash stuff. How about an interactive Flash-OS X sim, that shows the users expose and the dock in a flshy into, and then lets them play around in the OS X environment?

[BRussell]

Fred Anderson at the conference call last Wednesday said that ITMS was close to break even now. I'm not sure what he meant by that - was he comparing revenues to marketing, extra server cost, what?

[dfiler]

Even without the iTMS, iTunes for Windows could be profitable for apple. It would introduce the masses to a quality Apple product. Next time a PC user purchases a computer, they just might think: 'Maybe I should get an Apple. I wish everything on my computer worked as well as iTunes and my iPod.'

iTunes for Windows will likely be one of the most successful promotional campaign out of apple. They just better get the iTunes port right. QuickTime for the PC is shoddy enough that even novice users see how it is rough around the edges. Hell, its the only PC based media player that forces you to look at a postage stamp size video on today's massive screens.

iTunes and the iTMS could give Apple a central role in Windows users' computing lives.

[ast3r3x]

Originally posted by dfiler
...hell, its the only PC based media player that forces you to look at a postage stamp size video on today's massive screens.

what are you talking about? you can resize QT

unless u mean 128x96 pixel movies being shown at 2x magnification...yep love to watch movies where its pixelized any more then it needs to be

[dfiler]

Quicktime is an excellent set of technologies. Yet the windows port in particular is 'not worth it' for most PC users. The alternatives offer a better user experience in most of their eyes.

There are a number of interface issues which apple never endeavored to fix. The floating and separate menu bar really pisses off most PC users.

Likewise, many if not most users are aggravated by the lack of resize controls for web-embedded media. There is also no free, full-screen option. Thus, the experience most windows users have with quicktime is that it is cumbersome and you can't even kick back in your chair to watch something at a comfortable size. Sure, pixelation is distasteful in my eyes. Yet, if you don't give users what they want, they will be dissatisfied.

Finally, quicktime also chokes on most things divx related. Yes, this is somewhat fixable, but still, it makes quicktime 'not worth it' for most PC users.

Most video on the web used to be distributed in quicktime format. I suspect, the lack of resize options, menu bar issues, and lack of divx support caused people to go with something else that wasn't a hassle. This is why I say that Apple really needs to do a good job porting iTunes to windows. If not, they'll fail to capture the windows music playback/management niche just as Apple has lost a grip on the movie playback niche.