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

Posted:
in iPod + iTunes + AppleTV edited January 2014
From Macworld UK:



Quote:

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.



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Comments

  • Reply 1 of 23
    aquaticaquatic Posts: 5,602member
    Go Windows iTunes go!
  • Reply 2 of 23
    hmurchisonhmurchison Posts: 12,279member
    So how much is iTunes PC going to cost me? How about $29 with 15 prepaid downloads?
  • Reply 3 of 23
    macsrgood4umacsrgood4u Posts: 3,007member
    Quote:

    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).
  • Reply 4 of 23
    bungebunge Posts: 7,329member
    Quote:

    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.
  • Reply 5 of 23
    hmurchisonhmurchison Posts: 12,279member
    Quote:

    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.
  • Reply 6 of 23
    applenutapplenut Posts: 5,768member
    you don't charge for the software that allows people to order music from you.
  • Reply 7 of 23
    macsrgood4umacsrgood4u Posts: 3,007member
    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.
  • Reply 8 of 23
    eugeneeugene Posts: 8,254member
    Quote:

    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.
  • Reply 9 of 23
    powerdocpowerdoc Posts: 8,123member
    Quote:

    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.
  • Reply 10 of 23
    macsrgood4umacsrgood4u Posts: 3,007member
    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.
  • Reply 11 of 23
    placeboplacebo Posts: 5,767member
    A dime a song, in my opinion, is a really cushy profit for Apple. Not many items have a 10% margin.
  • Reply 12 of 23
    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.
  • Reply 13 of 23
    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.
  • Reply 14 of 23
    andersanders Posts: 6,523member
    Quote:

    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.
  • Reply 15 of 23
    mattyjmattyj Posts: 898member
    Many PC users I know want, practically need iTunes... Compared to Windows Media PLayer, iTunes is in several leagues above.
  • Reply 16 of 23
    macsrgood4umacsrgood4u Posts: 3,007member
    From Mac Daily News:
    Quote:

    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.



  • Reply 17 of 23
    eugeneeugene Posts: 8,254member
    Quote:

    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.
  • Reply 18 of 23
    buonrottobuonrotto Posts: 6,368member
    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!)
  • Reply 19 of 23
    placeboplacebo Posts: 5,767member
    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?
  • Reply 20 of 23
    brussellbrussell Posts: 9,812member
    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?
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