the profit margin can only increase in the tiny slice that Apple takes in. Unless you are suggesting that the labels and artists deserve less.
But Al Gore (who still does not understand why we are pouring money into a division that makes minimal profits) asks:
well I don't really see how selling billions matters.
at best we have fixed costs.
we're paying 85¢ on the dollar to labels and artists. After costs we're making 2¢ on the dollar, I realize you're saying we might be able to trim costs and we might make another penny.
Well I think it'd be less risky to put all that money we spend on iTMS and put it in a LOCKBOX! At least until we can find something better to invest in that will make us money like that iPOD division does!
Also what do you mean by lowering costs....I've heard rumbling that when the original licenses are up, the music companies are going to want a bigger piece of the action.
The profits you intend to make are culled from operationg efficiency. Hard Drives become cheaper, storage becomes cheaper, bandwidth becomes cheaper over time. The second part is the more iTunes tracks sold the more probability of "lock-in" for consumers heavily invested. Once you have a good deal of lockin you have licensing opportunities that will arise as other manf want to get into the mix.
The iPod/iTMS is an ecosystem and thus we must look at the macroeconomincs of such an ecosystem. Is the whole venture profitable? I think that answer is a resounding "yes".
You mean we don't make so much on the iTMS division, but the iPOD division makes money hand over tits, because of the iTMS division? Well then we can't get rid of the iTMS division because even though it doesn't contribute to the bottom line as much as any other division it necessary to drive our iPOD business.
why that's ingenious hmurchison! do you have a name for that business scheme?
oh wait one more question, If our iPOD division started losing money what happens to iTMS?
(One other thing to remember the largest part of iTMS's budget [after the labels and the artist] is corporate contribution, a percentage each division pays for those nice buildings and salaries of executives and Jets in Cupertino. the fixed costs of iTMS are staggering, that's why only apple uses it. it's not there to exist on it's own, it's there to drive iPOD sales and spread the Apple name. which gets us back to why labels want a bigger piece of the pie.)
I think that it will be good for the world if popular music is more expensive (Brittney Spears songs for $3, say, while everyone else sells for 0.99).
Hopefully it will mean that fewer people buy the crap at the top.
Sounds great to me! Of course, since I rarely buy anything from iTMS that's from the last 10 years, all the music I care about wouldn't change (maybe I could get a discount because the music's so old!)
This is yet another example of the inability of the various record labels to adapt. Two approaches to this - you think short-term or you think strategically with a long-term timeframe in mind.
Using the former brand of thinking, a record label looks at revenue from online music sales (still a very small percentage of the overall industry) and does basic math ("hmmm, if we jack up our licensing costs by 50% our revenue goes up 50%"). Using the latter line of thinking, the record labels allow a new, legal delivery mechanism to grow and become firmly established, then gradually raise costs later (once people are more dependant and/or are used to purchasing music online).
Obviously they prefer the former method, but it's just plain stupid, particularly since the costs involved in electronic distribution are so much lower than traditional physical tape/CD/DVD sales. Electronic distribution makes far greater long-term sense, but I think that the record labels are afraid to lose their control over the medium.
a loss leader is in intention, because it happens to make money is irrelevant. Its purpose is to get people in the door.
which is why it was exported to the windows platform.
TO SELL iPODS!
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.
I don't think you really comprehend that these are different markets. Had Apple planned a loss leader they would have sold at $0.89 or something and undercut the other companies that are built on selling music. The iTMS locks you into an iPod so there is incentive to do that but that was never the goal, although it was meant to support iPod sales (there needed to be a legal download alternative to WMA, which the iPod doesn't support).
The iTMS was designed to be self sustaining. It is a different market place to hardware and margins aren't expected to be the same. The margins you see on Apple's software vary massively from what they get on hardware (software and services are a high margin business) or in the music store but as a point of mention I would refer you here for a reliable source. $30 million will buy you an awful large amount of server capacity to supply the store too, especially when those servers are self supplied. Having some history in the roll out of large bank servers I'd be willing to bet at least 10% of that $0.99 price tag is margins, not bad at all. Admittedly Apple didn't plan on such a sell through but it wouldn't matter much it was always going to be self-sustaining with that price.
The hardware will always produce more money in the medium term since you need to sell a lot of $1 songs to even meet the profit margins of the iPod. As an aside that sort of business practice is not known as loss leading. Loss leading is selling at a loss or break even simply to penetrate a market. Support in a market with additional extras is common place. Each is viable under its own right and both support one another but the Music Store will never make big money.
That discussion over the definition of loss-leeader seems to be have gotten people emotionally attached to winning an argument, any argument. Doesn't matter which one, even if they have to pick one themselves.
well the argument is integral to the record companies point of view, if they are in fact asking for more money.
which I still haven't seen any hard evidence.
I'm beginning to wonder if this whole wave of paranoia wasn't set off by some idiot blogger seeing the the news item and not realizing it was a year old.
Certainly Apple wouldn't support the iTMS if iPod didn't exist but I don't think it's a matter of whether iTunesMS is sustainable or not. If they make money off it, or if they break even, it's meant to provide value to the iPod name and the product line. iTMS is more of a "hey let's save the music industry and sell a few more iPods along the way" kind of thing than a core business at Apple.
Reaching consensus on the EXACT definition and conotation...
Fairly non-productive given that each side already knows what the other side is refering to...
My personal take:
The iTMS was never intended as a loss leader but wasn't intended to generate lots of revenue either. (Note: I'm using loss-leader to refer to products sold at an actual loss. It is acknowledged that loss-leader is also used to refer to products which generate only a trivial margin.)
This doesn't mean that Apple wouldn't one day like to turn the iTMS into a significant source of profit. They'll simply play the game as well as possible given the competition and liscencing agreements negotiated with record labels.
The primary purpose of the iTMS is to sell iPods. However, this doesn't mean that apple intends to lose money. Nor does it suggest that they aren't maneuvering to get better leverage over content owners. Simply, put the iPod alone was enough motivation for the iTMS.
I still don't understand how 99 cents a song is a good deal.
The record industry is one of those rare industries where the executives both have the ability to set their own price and the shortsightedness to do so.
In a competitive market, the price of a digital download should be SUBSTANTIALLY lower than the price of a song on a physical album. The costs of packaging, shipping, distribution, etc do not exist. In a competitive environment, the industry would be forced to pass on the savings to the consumer.
The RIAA, through copyright law, is granted a virtually infinite (copyright terms keep getting extended), government sactioned monopoly on each song it owns.
Add this to the fact that the RIAA had to settled a class action suit for price fixing and voila! You have ample evidence to prove that the RIAA is a cartel, acting in concert to fix prices.
This is why 99 cents a song is rip-off. Charge me 20-30 cents a song and remove whatever DRM prevents me from doing what I want with the songs I paid for, and I might consider it.
Until then, I'll keep buying CDs from local and independent artists. At least I know they need the money.
The record industry threatens to increase the $ for online music. End result? Everyone rushes to puchase NOW before the rates increase. Meanwhile, the rates never do increase and we are manipulated like pavlov's dog.
In a competitive market, the price of a digital download should be SUBSTANTIALLY lower than the price of a song on a physical album.
I read somewhere that the physical CD and case only cost a few cents. Distribution is also cheap - Your $0.25 apple travels an average of 1500 miles before it gets to your belly.
Call me old fashioned or dumb, but I still like purchasing "real" CDs from Amazon and Best Buy. Digital downloads just seem so intangible to me. I just need the physical evidence that I bought the album. I like ripping it to iTunes and then store the fancy box in a drawer. Gives me a sense of peace to know I "really" have the music.
I'm just scared that my hard drive will die someday and all the music I coulda bought would be gone. What happens then? Does iTMS keep record of which songs you've bought so you can re-download them without any additional charge? (it's not a rhetorial question, I honestly don't know).
Then you have an issue with Apple Records which Apple computer is likely to lose..again.
I don't know the veracity of this statement but it wouldn't suprise me. The music industry is ran by snakes and cutthroats. They own the content so they can raise prices just like anything. Filesharing is still an option but I guess they feel like they can sue or poision P2P to oblivion.
If Apple can buy EMI, why the hell can't they just have done and buy Apple Records?
It'd be half the price. Bunch of clapped out old hippies.
As I can't see how Apple is making money by spending money for hosting these files.
I guess. They fuel QuickTime downloads, and a major goal of media players is their pervasiveness. Now, does QuickTime make much money? I don't know, but compared to the whole codec mess on the Windows side of things, I'm glad it's around :P
Comments
But Al Gore (who still does not understand why we are pouring money into a division that makes minimal profits) asks:
well I don't really see how selling billions matters.
at best we have fixed costs.
we're paying 85¢ on the dollar to labels and artists. After costs we're making 2¢ on the dollar, I realize you're saying we might be able to trim costs and we might make another penny.
Well I think it'd be less risky to put all that money we spend on iTMS and put it in a LOCKBOX! At least until we can find something better to invest in that will make us money like that iPOD division does!
Also what do you mean by lowering costs....I've heard rumbling that when the original licenses are up, the music companies are going to want a bigger piece of the action.
The profits you intend to make are culled from operationg efficiency. Hard Drives become cheaper, storage becomes cheaper, bandwidth becomes cheaper over time. The second part is the more iTunes tracks sold the more probability of "lock-in" for consumers heavily invested. Once you have a good deal of lockin you have licensing opportunities that will arise as other manf want to get into the mix.
The iPod/iTMS is an ecosystem and thus we must look at the macroeconomincs of such an ecosystem. Is the whole venture profitable? I think that answer is a resounding "yes".
You mean we don't make so much on the iTMS division, but the iPOD division makes money hand over tits, because of the iTMS division? Well then we can't get rid of the iTMS division because even though it doesn't contribute to the bottom line as much as any other division it necessary to drive our iPOD business.
why that's ingenious hmurchison! do you have a name for that business scheme?
oh wait one more question, If our iPOD division started losing money what happens to iTMS?
(One other thing to remember the largest part of iTMS's budget [after the labels and the artist] is corporate contribution, a percentage each division pays for those nice buildings and salaries of executives and Jets in Cupertino. the fixed costs of iTMS are staggering, that's why only apple uses it. it's not there to exist on it's own, it's there to drive iPOD sales and spread the Apple name. which gets us back to why labels want a bigger piece of the pie.)
Originally posted by superkarate monkeydeathcar
oh wait one more question, If our iPOD division started losing money what happens to iTMS?
If that happened, Apple would stop running the iTMS at a loss, and probably tag an extra 10 cents or so onto the price of a song.
They win either way really.
Originally posted by e1618978
I think that it will be good for the world if popular music is more expensive (Brittney Spears songs for $3, say, while everyone else sells for 0.99).
Hopefully it will mean that fewer people buy the crap at the top.
Sounds great to me! Of course, since I rarely buy anything from iTMS that's from the last 10 years, all the music I care about wouldn't change (maybe I could get a discount because the music's so old!)
Using the former brand of thinking, a record label looks at revenue from online music sales (still a very small percentage of the overall industry) and does basic math ("hmmm, if we jack up our licensing costs by 50% our revenue goes up 50%"). Using the latter line of thinking, the record labels allow a new, legal delivery mechanism to grow and become firmly established, then gradually raise costs later (once people are more dependant and/or are used to purchasing music online).
Obviously they prefer the former method, but it's just plain stupid, particularly since the costs involved in electronic distribution are so much lower than traditional physical tape/CD/DVD sales. Electronic distribution makes far greater long-term sense, but I think that the record labels are afraid to lose their control over the medium.
Originally posted by superkarate monkeydeathcar
a loss leader is in intention, because it happens to make money is irrelevant. Its purpose is to get people in the door.
which is why it was exported to the windows platform.
TO SELL iPODS!
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.
I don't think you really comprehend that these are different markets. Had Apple planned a loss leader they would have sold at $0.89 or something and undercut the other companies that are built on selling music. The iTMS locks you into an iPod so there is incentive to do that but that was never the goal, although it was meant to support iPod sales (there needed to be a legal download alternative to WMA, which the iPod doesn't support).
The iTMS was designed to be self sustaining. It is a different market place to hardware and margins aren't expected to be the same. The margins you see on Apple's software vary massively from what they get on hardware (software and services are a high margin business) or in the music store but as a point of mention I would refer you here for a reliable source. $30 million will buy you an awful large amount of server capacity to supply the store too, especially when those servers are self supplied. Having some history in the roll out of large bank servers I'd be willing to bet at least 10% of that $0.99 price tag is margins, not bad at all. Admittedly Apple didn't plan on such a sell through but it wouldn't matter much it was always going to be self-sustaining with that price.
The hardware will always produce more money in the medium term since you need to sell a lot of $1 songs to even meet the profit margins of the iPod. As an aside that sort of business practice is not known as loss leading. Loss leading is selling at a loss or break even simply to penetrate a market. Support in a market with additional extras is common place. Each is viable under its own right and both support one another but the Music Store will never make big money.
That discussion over the definition of loss-leeader seems to be have gotten people emotionally attached to winning an argument, any argument. Doesn't matter which one, even if they have to pick one themselves.
which I still haven't seen any hard evidence.
I'm beginning to wonder if this whole wave of paranoia wasn't set off by some idiot blogger seeing the the news item and not realizing it was a year old.
Good
Reaching consensus on the EXACT definition and conotation...
Fairly non-productive given that each side already knows what the other side is refering to...
My personal take:
The iTMS was never intended as a loss leader but wasn't intended to generate lots of revenue either. (Note: I'm using loss-leader to refer to products sold at an actual loss. It is acknowledged that loss-leader is also used to refer to products which generate only a trivial margin.)
This doesn't mean that Apple wouldn't one day like to turn the iTMS into a significant source of profit. They'll simply play the game as well as possible given the competition and liscencing agreements negotiated with record labels.
The primary purpose of the iTMS is to sell iPods. However, this doesn't mean that apple intends to lose money. Nor does it suggest that they aren't maneuvering to get better leverage over content owners. Simply, put the iPod alone was enough motivation for the iTMS.
The record industry is one of those rare industries where the executives both have the ability to set their own price and the shortsightedness to do so.
In a competitive market, the price of a digital download should be SUBSTANTIALLY lower than the price of a song on a physical album. The costs of packaging, shipping, distribution, etc do not exist. In a competitive environment, the industry would be forced to pass on the savings to the consumer.
The RIAA, through copyright law, is granted a virtually infinite (copyright terms keep getting extended), government sactioned monopoly on each song it owns.
Add this to the fact that the RIAA had to settled a class action suit for price fixing and voila! You have ample evidence to prove that the RIAA is a cartel, acting in concert to fix prices.
This is why 99 cents a song is rip-off. Charge me 20-30 cents a song and remove whatever DRM prevents me from doing what I want with the songs I paid for, and I might consider it.
Until then, I'll keep buying CDs from local and independent artists. At least I know they need the money.
In a competitive market, the price of a digital download should be SUBSTANTIALLY lower than the price of a song on a physical album.
I read somewhere that the physical CD and case only cost a few cents. Distribution is also cheap - Your $0.25 apple travels an average of 1500 miles before it gets to your belly.
I'm just scared that my hard drive will die someday and all the music I coulda bought would be gone. What happens then? Does iTMS keep record of which songs you've bought so you can re-download them without any additional charge? (it's not a rhetorial question, I honestly don't know).
Originally posted by hmurchison
Then you have an issue with Apple Records which Apple computer is likely to lose..again.
I don't know the veracity of this statement but it wouldn't suprise me. The music industry is ran by snakes and cutthroats. They own the content so they can raise prices just like anything. Filesharing is still an option but I guess they feel like they can sue or poision P2P to oblivion.
If Apple can buy EMI, why the hell can't they just have done and buy Apple Records?
It'd be half the price. Bunch of clapped out old hippies.
Problem solved.
Originally posted by superkarate monkeydeathcar
.. apple would support iTMS if iPOD didn't exist?
Does this mean they never created the iPod?
I would say, in the same way they have supported movie trailers, yes.
Apple has an interest in showing the Mac as a viable platform.
(Hence why they created the iLife apps even after asking Adobe to help.)
Apple is not in the business of selling movie tickets or evening owning a theater chain, so what is the advantage of the trailers?
Would these trailers be considered a loss leader?
As I can't see how Apple is making money by spending money for hosting these files.
Originally posted by JimDreamworx
Would these trailers be considered a loss leader?
As I can't see how Apple is making money by spending money for hosting these files.
I guess. They fuel QuickTime downloads, and a major goal of media players is their pervasiveness. Now, does QuickTime make much money? I don't know, but compared to the whole codec mess on the Windows side of things, I'm glad it's around :P