iTunes Store quietly generates record revenues of $1.4 billion

Posted:
in iPod + iTunes + AppleTV edited January 2014
Apple reported its best quarterly revenues ever for the iTunes Store, which brought in nearly $1.4 billion in the first three months of the year.



The company credited its record revenues to sales of music, video, iOS apps and ebooks, noting that Random House was added as the last major book catalog to begin selling in iTunes' iBooks Store. The publisher added 17,000 ebooks to the collection of titles that now represents more than 2,500 publishers. Apple said customers have downloaded over 100 million books.



A primary driver of iTunes revenues, however, appears to be Apple's own catalog of iOS apps. The company repeated old numbers that have been previously reported: "over 350,000 apps," "over 10 billion downloads," and more than "more than $2 billion in payments to developers since opening the App Store."



The pace of iOS downloads is ramping up quickly. Last June, Apple's chief executive Steve Jobs noted that users had downloaded over 5 billion apps and that that the App Store had generated $1 billion in payments to developers. Those figures have both doubled in the last three quarters.



Media subscriptions



Apple also touted its "new subscription service available to all publishers of content based apps, including magazines, newspapers, video, and music," noting that "Publishers set the price and length of subscription, and customers select a subscription and length they want with one click."



Apple's primary competition in selling online digital subscriptions is Amazon and its Kindle service, which works on its own Kindle hardware, Apple's iOS devices via an app, and on other platforms. When Apple entered the media subscriptions business, it forced Amazon to sharply lower the cut it demanded from publishers.



While iTunes is similar in some respects to Amazon, Apple's media business is entirely digital, and exists primarily to support hardware sales. Amazon's Kindle appears to be the opposite, making minor profits on hardware while supporting Amazon's primary retail business. Amazon is increasingly working to move its business into the digital domain, first with Kindle ebooks, and more recently with its Android Appstore initiative.



iTunes Store subscriptions gaining traction



The initial brouhaha over the terms of Apple's subscription plans seems to have subsided, with major publishers jumping in to deliver regular new content via iTunes and apps.



The Daily hit first with lackluster content but an improved format, followed by an announcement by New York Times which paired exceptional content with premium prices. Bloomberg BusinessWeek most recently delivered a highly regarded digital version of its revised magazine at a low $2.99 per month.







A wide variety of in app subscription magazines are now available within iTunes, including Better Homes and Gardens, Ebony, Elle, Maxim, Motor Trend, National Geographic, The New Yorker, Nylon, O, Popular Science, Project, Sports Illustrated and Wired, along with a growing list of newspapers and TV stations.

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Comments

  • Reply 1 of 21
    macrrmacrr Posts: 488member
    what's the latest on apple's cash position? is it 60B yet ?
  • Reply 2 of 21
    solipsismsolipsism Posts: 25,726member
    I want a “break even” business model that yields $1.4 billion in revenue in 3 months.



    Seriously tough, any word on the profits from this?
  • Reply 3 of 21
    lazollazol Posts: 20member
    "Apple reported its best quarterly revenues ever for the iTunes Store, which brought in nearly $1.4 billion in the first three months of the year."



    But they sell only useless farth applications!?:lol
  • Reply 4 of 21
    patranuspatranus Posts: 366member
    So iTunes generates more revenue for Apple then the entire Android platform - LOL
  • Reply 5 of 21
    apple ][apple ][ Posts: 8,680member
    I've been buying up some apps since I got my iPad2.



    Most apps are priced pretty good. I've found a few that are too expensive IMO, but if a developer sets their price too high compared to what the app is worth, then fewer people will buy it.



    I think that ibooks in general are too expensive, especially compared to apps. Book prices should come down. Words delivered electronically shouldn't cost more or the same as a physical copy of a book.
  • Reply 6 of 21
    SpamSandwichSpamSandwich Posts: 31,191member
    Obviously profits on apps beats the pants off razor-thin margins on music. Apps and iPhone hardware are driving nearly all growth and profitability at Apple right now.
  • Reply 7 of 21
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by Patranus View Post


    So iTunes generates more revenue for Apple then the entire Android platform - LOL



    A bum begging for change generates more revenue than Android OS.
  • Reply 8 of 21
    apple ][apple ][ Posts: 8,680member
    Quote:
    Originally Posted by solipsism View Post


    A bum begging for change generates more revenue than Android OS.



    Some of those professional bums actually make quite decent money with their scheming ways. Since some of those bums are raking in the money, those bums most likely own and use iPhones since they can afford it. Even a dirty bum wouldn't want to be caught dead with an Android phone.
  • Reply 9 of 21
    cvaldes1831cvaldes1831 Posts: 1,832member
    Quote:
    Originally Posted by solipsism View Post


    I want a “break even” business model that yields $1.4 billion in revenue in 3 months.



    Seriously tough, any word on the profits from this?



    Hard to say. The margins on music are razor thin, they get 30% of app sales. However, they keep all the revenue from the sale of their own apps, so the figure is definitely higher. There are different margins for the books and video products (movies, TV shows). The problem is we will never know what it costs for Apple to run the iTunes Store.



    If the iTunes Store was a substantial percentage of the overall net income, Apple would be obligated to provide more information about its operations as it would take on more importance in the shareholders' eyes. It is possible that we will see more disclosure if the iTunes Store revenue increases in terms of percentage of the total company revenue.



    Right now, it is less than 6% of the total revenue.
  • Reply 10 of 21
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by cvaldes1831 View Post


    Well, Apple's cut is 30%, at least $420 million. However, they keep all the revenue from the sale of their own apps, so the figure is definitely higher. The problem is we will never know what it costs for Apple to run the iTunes Store.



    If the iTunes Store was a substantial percentage of the overall net income, Apple would be obligated to provide more information about its operations as it would take on more importance in the shareholders' eyes. It is possible that we will see more disclosure if the iTunes Store revenue increases in terms of percentage of the total company revenue.



    Right now, it is less than 6% of the total revenue.



    That?s for paid apps*. We don?t the average from all parts of the iTS/App Store system.



    Let?s assume the average gross profit is 30%, then we have to find the net profit. How much does that infrastructure cost? How about any licensing fees not tied to the per unit purcahse price of audio or video content? How about iTunes development? Does the new data center costs come from the iTunes profit potentially making it lose money this past quarter? Is there anybody in there? Is there anyone at home? Can you show me where it hurts? Why I am reciting questions from a Pink Floyd song? Why am I asking so many rhetorical questions?





    * I guess you could say all apps since a free app would still yield Apple 30% of zero, but that seemed less clear to write.
  • Reply 11 of 21
    Quote:
    Originally Posted by SpamSandwich View Post


    Apps and iPhone hardware are driving nearly all growth and profitability at Apple right now.



    Unless by apps, you mean apps are driving the sales of iOS devices, which is driving apple's profitability, your sentence is laughably wrong.



    Apps form a percentage of the 1.4Bn, and at most, Apple gets about 30% of that. At best (assuming Apple has $0 from music, books, etc., and they have no costs associated with running the iTunes store), Apple makes 420mn out of Apps. That is less than a pittance in Apple's growth story.
  • Reply 12 of 21
    jeffdmjeffdm Posts: 12,946member
    Quote:
    Originally Posted by SpamSandwich View Post


    Obviously profits on apps beats the pants off razor-thin margins on music. Apps and iPhone hardware are driving nearly all growth and profitability at Apple right now.



    I don't see that apps are necessarily making more than music, especially when you have so many apps priced at $0.99, the same as a music track, with roughly the same royalty percentage and other expenses, and even then, most apps are free, the free downloads and free updates given without charge. Hardware is a different matter, and really, a different part of the business.



    Quote:
    Originally Posted by cvaldes1831 View Post


    Hard to say. The margins on music are razor thin, they get 30% of app sales. However, they keep all the revenue from the sale of their own apps, so the figure is definitely higher. There are different margins for the books and video products (movies, TV shows). The problem is we will never know what it costs for Apple to run the iTunes Store.



    Apple still have development expenses on their own apps. I would expect that Apple's software division gets credited with 70% of the sale. The net doesn't necessarily get credited to the App Store itself.



    Quote:

    Right now, it is less than 6% of the total revenue.



    Where did you get that figure? It sounds plausible, but I'm curious.
  • Reply 13 of 21
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by JeffDM View Post


    Where did you get that figure?



    $1.4 billion in iTunes Store related revenue out of about $25 billion is a little less than 6% revenue for the quarter.
  • Reply 14 of 21
    chris_cachris_ca Posts: 2,543member
    Wonder how much is generated through their "hobby" AppleTV?
  • Reply 15 of 21
    solipsismsolipsism Posts: 25,726member
    Quote:
    Originally Posted by Chris_CA View Post


    Wonder how much is generated through their "hobby" AppleTV?



    As direct HW sales or iTS content being rented through the AppleTV?



    No idea on the latter, but for the first it?s about $81 million (or under 6% of the iTS revenue) if we assume 820k units for the quarter.
  • Reply 16 of 21
    Quote:
    Originally Posted by macrr View Post


    what's the latest on apple's cash position? Is it 60b yet ?



    $65.8b.
  • Reply 17 of 21
    Quote:
    Originally Posted by solipsism View Post


    I want a ?break even? business model that yields $1.4 billion in revenue in 3 months.



    Seriously tough, any word on the profits from this?



    I doubt that it's very high.



    As an aside, even if it were the 20% average for Apple, that's just $280M. In actuality, it's probably much lower. So if we say $1B for the whole year, at a PE ratio of 16x, that's $16B in mkt cap (or about 5% of where the valuation is today).
  • Reply 18 of 21
    chris_cachris_ca Posts: 2,543member
    Quote:
    Originally Posted by solipsism View Post


    As direct HW sales or iTS content being rented through the AppleTV?



    iTunes store revenue.
  • Reply 19 of 21
    nvidia2008nvidia2008 Posts: 9,262member
    Quote:
    Originally Posted by Lazol View Post


    "Apple reported its best quarterly revenues ever for the iTunes Store, which brought in nearly $1.4 billion in the first three months of the year."



    But they sell only useless farth applications!?:lol



    What's a farth? Is that Sith fart?
  • Reply 20 of 21
    MacProMacPro Posts: 18,303member
    Quote:
    Originally Posted by solipsism View Post


    I want a ?break even? business model that yields $1.4 billion in revenue in 3 months.



    Seriously tough, any word on the profits from this?



    The report mentions Apple's own products being the major contributor to actual profits. Something Android, RIM and Amazon will have a hard time emulating on their copycat stores.
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