Music Tech

iTunes Sales Are Making Apple Money, No Longer Just A Lure For Hardware



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When iTunes began it was designed to make money for Apple via the sale of iPods. So the assumption since then has always been that Apple doesn't make money off music especially since Apple has long presented iTunes as a "break-even" proposition. An upcoming report from Asymco estimates that Apple is doing quite well off sales via iTunes though it's the software that is likely to be generating the most revenue.


In an excerpt from an upcoming report, Horace Dediu estimates the "Gross iTunes Revenue by Media Type" (click on above thumbnail for full chart) and compares that to the estimated cost of operating the iTunes store.

"At break-even the cost of operating iTunes stores would be about $3.75 billion. It’s hard to imagine this level of operational expense for digital content."

"For this reason, management has begun since 2010 to suggest that at least the App Store is run 'a little over break-even.' How little is a good question. A one percent operating margin (from gross revenues) would imply as much as $45 million margin. I estimate 2% is possible on Apps and 1% on Music."

"That’s $150 million in margin content."

He goes on to point out that Apple software offers much higher margins and that's where the real revenue lies.

So it's worth noting that music may not be a huge profit center but it was definitely used to establish iTunes in the lives of consumers. That has made it an effective base upon which Apple has built its store for content and software.

Hypebot Senior Contributor Clyde Smith (@fluxresearch/@crowdfundingm) also blogs at All World Dance: Videos and maintains Music Biz Blogs. To suggest topics for Hypebot, contact: clyde(at)fluxresearch(dot)com.

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1 Comment

  1. I also heard that iTunes is also looking into the subscription business model for profiting from music.
    And if artists were smart, they’d realize we don’t need iTunes to set up a little store or a subscription service for us musicians.
    That’s like someone going to a newspaper and saying “I will deliver your newspapers to people’s email inboxes and take a cut from your profits.” We don’t need middlemen anymore!
    And though I think subscription is great, I think we artists should give people their music. So, following the subscription idea -what if we gave them something that can be monetized regularly: access?!
    Why don’t the artists take the means to exist as an artist into their own hands?
    We can circumvent iTunes, Spotify and all middlemen, and charge our fans to access our content on a subscription basis! WE just have to find THEM, our fans, instead of grabbing random people who depend on iTunes for their music needs.
    The key is content, not just songs. Why aren’t artists thinking in broader terms on how to make a living off their work?
    I think the answer is that after years and years of mass production mentality –driving prices down on songs to sell albums, artists have turned to “FREE” as their promotion approach. As if hoping to go viral.
    The problem with this, I think, is it causes not only fans to de-value music (who doesn’t want something good for cheap, or better yet: free?) but also artists themselves now don’t see the value of what they do. The monetary value. The thing they provide, the lightning they bottle and could be selling for more.
    I’m not talking about artists complaining in order to get prices raised on songs or per-play rates. Complaining won’t always change things. Spotify will still pay even big name artists 30¢ per play and they will complain because they are trying to make a living off of it.
    For the rest of us not on labels, or on labels so tiny that our payment is simply having our songs pressed up on vinyl (or possibly cd) and released for free, the idea of making a living from music has been vanquished to fantasy-land.
    Which is a shame. With a little effort and a change in mentality, we could toss aside these middlemen. The tools exist, we just need to get creative. Artists, too, are still kind of living in the dark ages mentality created by the big music industry that’s been lingering since the 70’s.
    And Bandcamp is a step in the right direction. But artists on there are still just giving it away for free. They could be getting email addresses and forming relationships, converting those fans into a steady-paying clientele. More than that, fans could become friends, and friends are often for life.

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