iTMS Will Contribute To Apple's Bottom Line in '05 and '06.
Contrary to some belief, iTMS is making a profit (albeit a small one) and according to one analyst it will continue to increase. T his certainly is good news, especailly to those who believe iTMS is only a Trojan horse for iPod sales. Here's what Herman, err Gene Munster says as reported by Mac News:
Quote:
"At 99 cents a song, Apple officials have said iTunes generates very little profit for the company and that the store serves mainly as a vehicle to sell iPods, which cost between $249 for an iPod mini, to $399. The more expensive model holds up to 10,000 songs. Apple claims to have sold more than 3.5 million iPods.
Gene Munster, of Piper Jaffray, said in a research note that it would be a mistake to underestimate iTunes' impact on Apple's financials, and the company's ability to dominate the online music market.
iPod-iMac Connection
Munster, who holds an "outperform" rating on Apple's stock, estimates that iTunes will contribute $7 million to Apple's operating income, and $211 million toward revenue for its 2005 fiscal year, and $16 million in operating income and $337 million in revenue in the company's 2006 fiscal year.
"We believe that the music industry is moving online, and iTunes will continue to dominate this market, based on the success of the iPod," Munster said. "The service will emerge as a stock driver through increasing hype, [and] impacting shares of Apple."
Munster added that there is growing evidence that the iPod's success is increasing demand for iMac computers. Merrill's Milunovich called this the iPod's "halo effect," and said that Apple's sales in the quarter could exceed Merrill's estimates of 1.1 million iPods and 460,000 laptop computers.
"At 99 cents a song, Apple officials have said iTunes generates very little profit for the company and that the store serves mainly as a vehicle to sell iPods, which cost between $249 for an iPod mini, to $399. The more expensive model holds up to 10,000 songs. Apple claims to have sold more than 3.5 million iPods.
Gene Munster, of Piper Jaffray, said in a research note that it would be a mistake to underestimate iTunes' impact on Apple's financials, and the company's ability to dominate the online music market.
iPod-iMac Connection
Munster, who holds an "outperform" rating on Apple's stock, estimates that iTunes will contribute $7 million to Apple's operating income, and $211 million toward revenue for its 2005 fiscal year, and $16 million in operating income and $337 million in revenue in the company's 2006 fiscal year.
"We believe that the music industry is moving online, and iTunes will continue to dominate this market, based on the success of the iPod," Munster said. "The service will emerge as a stock driver through increasing hype, [and] impacting shares of Apple."
Munster added that there is growing evidence that the iPod's success is increasing demand for iMac computers. Merrill's Milunovich called this the iPod's "halo effect," and said that Apple's sales in the quarter could exceed Merrill's estimates of 1.1 million iPods and 460,000 laptop computers.
Comments
There are a couple of reasons for this.
First, one rule that is often followed in marketing/product development is to "commodotize your complements." Every product has complements...some other product (or service) that when bought will lead to greater sales of the core/central product. Razors/blades, Cars/tires-gasoline-oil-etc., And so on. In the case of Apple, (iTMS) music can be the "complement" to iPods. The more people buy of iTMS music, the more likely they'll wish to buy an iPod. So the goal here OUGHT to be to make the cost of acquiring music from the iTMS as cheap (and impulsive) as possible. You're making the real profit on the iPods.
Second, if you ensure that there is no profit to be made in (only) selling the music...all of your (music only) competitors will soon be out of business.