iTunes has never been a loss leader. if you don't believe me look at their financial filings. it consistantly makes a slim profit.
Also, record labels actually make MORE money selling on iTunes than they do selling their own CDs. With CDs, labels have to distribute them to stores, print CDs and the CD booklets, package and ship them. Then they have to give some profit margins (only a little more if any more than what Apple gets) to the resellers.
With the iTunes model all the record labels have to do is give Apple the song files along with the album art and then Apple covers the bandwidth costs and the storage costs. Record labels make even more money this way because they don't have to pay a dime to distribute. Apple gets somewhere around 10 cents per song and out of that 1-3 of the cents makes Apple profit.
The first link is a repeat of the second link, neither of which actually has Jobs saying that the iTMS is a "loss leader." It's always turned a profit, thus no loss, thus no loss leader. Yes, iTMS pushes sales of iPods, and that's where the bulk of Apple's music profits are coming from, but that doesn't mean the store is operating at a loss to do so. In fact, I think there was a Cringely article arguing that Apple had trumped the razor/blade model by making them both profitable.
"A commodity offered especially by a retail store at cost or below cost to attract customers"
iTunes Music Store doesn't apply once it started making even the smallest of profit. It "was" a loss leader in the beginning but it no longer maintains that status.
"A commodity offered especially by a retail store at cost or below cost to attract customers."
So the question is, does Apple make any money from iTunes music? The last 10Q filing from Apple (primary source) shows $170 million in sales for the music store, but does not break out cost for it. Jobs had said that he doesn't expect the music store to make much money, but he didn't say they'd be losing money either.
Given the way Apple runs the rest of its business, I'd be surprised if they lose money on it. They simply aren't willing to have any part of their business lose money.
loss leader does not mean to lose money! it means to make less profit to drive another profit engine.
Wrong!
Man i've been in sales over a decade. A Loss Leader means you either break even or lose money to spur sales(usually of another item like warranties, iPods etc). Period.
iTMS was in fact a LL in the beginning. It is no longer a LL and is expected to turn a profit where it can.
.....which is wahat i said....in the beginning it was designed as a loss leader.
wow 10 years!
query:
if your are on Apple's board of directors, hell let's say you are Vice-President Al Gore, and you are examining the iTMS division's P&L, what would your opinion be? Why is this part of the company? What does it do for Apple? What's the point of putting money in this division?
I think iTMS has the potential to scale well as HD and bandwidth costs decrease. Thus I think Apple had set it up for a trajectory that takes iTMS from Loss Leader status to making quite the nice sum of money. The Big5 raising their prices throws a severe kink into this IMO.
I've reread your reply and I guess you'd keep iTMS because some day they might make a nice sum of money on it.
and you base this on reduction of the costs of hosting. Bandwidth and HD space.
so now Al Gore asks:
Isn't their a cap on the amount of profit we can make inside iTMS? We have a ceiling, even if we eliminate costs of hosting the store there is only so much money we can make with this model.
we can make millions of dollars you say but if it costs hundreds of millions to make millions I'd rather invest in another division that makes money.
How about that iPOD division? we seem to be getting a pretty good return there.
Well the initial launch of the store incurred support costs that will diminish over time. Couple that with an increase in total track sales and you have a widening effect on profit margin.
What happens when Apple is selling Billions of tracks a years. That's a lot of dosh trickling into the coffers of Cupertino.
I think this is the prime reason why the iPod isn't open to other service's DRM
Comments
iTunes has never been a loss leader. if you don't believe me look at their financial filings. it consistantly makes a slim profit.
Also, record labels actually make MORE money selling on iTunes than they do selling their own CDs. With CDs, labels have to distribute them to stores, print CDs and the CD booklets, package and ship them. Then they have to give some profit margins (only a little more if any more than what Apple gets) to the resellers.
With the iTunes model all the record labels have to do is give Apple the song files along with the album art and then Apple covers the bandwidth costs and the storage costs. Record labels make even more money this way because they don't have to pay a dime to distribute. Apple gets somewhere around 10 cents per song and out of that 1-3 of the cents makes Apple profit.
Originally posted by Telomar
The iTMS was never a loss leader. It was expected to cover its own costs and turn a slim profit and it has always done that.
link one
link two
link three - go to 3rd paragraph from the bottom
are these facts straight enough?
"Not a money maker" != "loss leader"
is there anyone here who doesn't have their head up their ass?
This is what's known as the death throes of an industry. Too bad Apple's stuck in the middle.
Originally posted by superkarate monkeydeathcar
link one
link two
link three - go to 3rd paragraph from the bottom
are these facts straight enough?
?
The first link is a repeat of the second link, neither of which actually has Jobs saying that the iTMS is a "loss leader." It's always turned a profit, thus no loss, thus no loss leader. Yes, iTMS pushes sales of iPods, and that's where the bulk of Apple's music profits are coming from, but that doesn't mean the store is operating at a loss to do so. In fact, I think there was a Cringely article arguing that Apple had trumped the razor/blade model by making them both profitable.
tell me what a loss leader is.
Originally posted by superkarate monkeydeathcar
you don't know what a loss leader is.
tell me what a loss leader is.
"A commodity offered especially by a retail store at cost or below cost to attract customers"
iTunes Music Store doesn't apply once it started making even the smallest of profit. It "was" a loss leader in the beginning but it no longer maintains that status.
loss leader
which is a pretty good definition of iTMS in the beginning, and looking back on it, it's an exact definition of what apple HAS achieved with iTMS.
"A commodity offered especially by a retail store at cost or below cost to attract customers."
So the question is, does Apple make any money from iTunes music? The last 10Q filing from Apple (primary source) shows $170 million in sales for the music store, but does not break out cost for it. Jobs had said that he doesn't expect the music store to make much money, but he didn't say they'd be losing money either.
Given the way Apple runs the rest of its business, I'd be surprised if they lose money on it. They simply aren't willing to have any part of their business lose money.
But that's just my opinion.
which is why it was exported to the windows platform.
TO SELL iPODS!
In the beginning iTMS was completely a loss leader.
does it make the same margins as their hardware? as their software?
so they are making a marginal amount of money for what reason, to make fanbois happy? yeah that's it.
loss leader does not mean to lose money! it means to make less profit to drive another profit engine.
loss leader does not mean to lose money! it means to make less profit to drive another profit engine.
Wrong!
Man i've been in sales over a decade. A Loss Leader means you either break even or lose money to spur sales(usually of another item like warranties, iPods etc). Period.
iTMS was in fact a LL in the beginning. It is no longer a LL and is expected to turn a profit where it can.
wow 10 years!
query:
if your are on Apple's board of directors, hell let's say you are Vice-President Al Gore, and you are examining the iTMS division's P&L, what would your opinion be? Why is this part of the company? What does it do for Apple? What's the point of putting money in this division?
wow 10 years!
I said "over" 10 years
trust me I learned to "hate" Loss Leaders.
I think iTMS has the potential to scale well as HD and bandwidth costs decrease. Thus I think Apple had set it up for a trajectory that takes iTMS from Loss Leader status to making quite the nice sum of money. The Big5 raising their prices throws a severe kink into this IMO.
20 years....still wow!
you're on the board of directors, looking at the P & L of the iTMS division, why do you allow iTMS to exist?
I'll take an answer from anyone.
and you base this on reduction of the costs of hosting. Bandwidth and HD space.
so now Al Gore asks:
Isn't their a cap on the amount of profit we can make inside iTMS? We have a ceiling, even if we eliminate costs of hosting the store there is only so much money we can make with this model.
we can make millions of dollars you say but if it costs hundreds of millions to make millions I'd rather invest in another division that makes money.
How about that iPOD division? we seem to be getting a pretty good return there.
What happens when Apple is selling Billions of tracks a years. That's a lot of dosh trickling into the coffers of Cupertino.
I think this is the prime reason why the iPod isn't open to other service's DRM