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13 Comments

1. 

   And iTunes is still #2 even if you count NON legal

   Tuesday, June 7, 2005 - 12:22 pm · Reply

   services too!
2. 

   Geo

   Tuesday, June 7, 2005 - 12:32 pm · Reply

   How many songs does the iTunes Music Store now offer? It seems like Apple has stopped trumpeting this expansion of the store and that have been very slow to reach 1.5 million songs after achieving one million pretty quickly. (Have they reached this 1.5 hallmark yet?)

   Many songs still are not available through iTunes, and I see no recent reports publicized for how aggressive they are growing their catalog.
3. 

   Geo

   Tuesday, June 7, 2005 - 12:36 pm · Reply

   If the pace of digitizing songs for the iTunes Music Store has slowed (and I believe it has), perhaps Apple has switched these resources to preparing video content (and a huge video-on-demand library) for an Apple video service that many expect.
4. 

   ray

   Tuesday, June 7, 2005 - 12:54 pm · Reply

   Steve! Where is iTunes 4.9 we have been teased about it’s release two times now. This is getting old, release it already.
5. 

   Lurker_PC

   Tuesday, June 7, 2005 - 1:45 pm · Reply

   Too bad SJ didn’t provide any information regarding how many of the downloads were due to promotions – such as the recent promotion with Pepsi. Anybody know if this type of information is available? Thanks.

   Peace.
6. 

   Alex

   Tuesday, June 7, 2005 - 1:59 pm · Reply

   At D: All Things Digital on May 22, Steve Jobs said that iTunes 4.9 would be released within 60 days. Why don’t you get a countdown calendar widget? When the 60 days are up, then you can tell us it’s getting old
7. 

   Tusken Jedi

   Tuesday, June 7, 2005 - 2:20 pm · Reply

   Has anyone heard if and when the AC/DC library of songs will be available on iTunes? I have a list of songs I want of their to buy, but I don’t want to have to buy the CD or get them from peer-to-peer!
8. 

   macnut222

   Tuesday, June 7, 2005 - 2:25 pm · Reply

   Apple has already hit 1.5 million songs in their library.

   Check http://apple.com/itunes
9. 

   NewType

   Tuesday, June 7, 2005 - 2:46 pm · Reply

   I think iTunes hit the 1.5 million song mark a while ago.

   iTunes is now a half a billion dollar a year business.

   And why do certain people and math-challenged music execs continue to claim that subscriptions “make more money?”

   Despite competition from both Napster and Yahoo, Apple INCREASED its market share during May. What does that tell us?

   1) iTunes is growing much faster than all the subscription services combined.

   Or

   2) Subscription services have flat-lined or fallen off the growth curve, allowing iTunes to grow faster than the industry even with slower growth.

   Yeah, I wanna here how wonderful it is to rent my music, one more time! Not.
10. 

    king_alvarez

    Tuesday, June 7, 2005 - 2:58 pm · Reply

    NewType,
    I think the reasoning is that per person subscription services are more profitable. The average amount that a person spends on subscriptions each month is higher than the average amount a person would spend on purchasing music downloads. They can get more money out of a person if they are paying for a subscription each month than just the songs they want each month. But of course, none of that matters if no one is paying for the subscription service.
11. 

    Neil

    Tuesday, June 7, 2005 - 3:58 pm · Reply

    According to my calculations the last 30 million songs to 29 days to be sold. That compares to the previous 50 million taking 28 days. That was a big jump from the month before and may be due to the Pepsi sales.

    Jobs said the DL rate was 500M a year – more like 400M unless the 430M mark was surpassed earlier (5/31 makes sense there).
12. 

    NewType

    Tuesday, June 7, 2005 - 5:00 pm · Reply

    king_alvarez wrote: “I think the reasoning is that per person subscription services are more profitable. The average amount that a person spends on subscriptions each month is higher than the average amount a person would spend on purchasing music downloads.”

    That’s exactly why the argument is so fallacious. It is a fake stat used to justify a model that will end up being far less profitable than the iTunes model.

    Here’s another way of using stats to look at it. Let’s say a subscription costs $15 a month. On iTMS, that’s equivalent to 15 song dowloads or about $1.00 per song. Let’s say 65% of that goes to the music companies and 30% are streaming and infracture costs. Apple keeps 5%.

    So for every 15 songs Apple sells, the music company gets a check for $9.75, $4.50 goes to keeping iTMS up and running, and $0.75 goes to Apple’s coffers.

    Let’s take a look at what happens under the $15/month subscription model.

    In Case 1, the user pays the subscription but only streams 1 song. Infrastructure costs in this scenario would be virtually nothing – let’s say $0.30 or 30% of $1.00. The remaining $14.70 is essentially pure profit that’s split between the record company and Napster (for the sake of argument).

    Looks pretty good compared to iTMS, right?

    But how likely is this scenario? Not very.

    In Case 2 – the realistic one – the user has unlimited streaming with the subscription and as a result, ends up listening to 100 different songs during the month. That’s only about 3 per day.

    Whether streaming or downloading the song, the costs are the same because the service has to transmit an average of 5 MB of data per song to the user, or 500 MB total. Suddenly, the infracture costs ends up going up to $0.30/song * 100 songs or $30! That doesn’t look so profitable anymore, does it?

    But let’s be generous. Let’s say infracture costs are just $0.03 per song. Remember, “infrastructure costs” include the cost of bandwidth, the electricity to keep the hundreds of servers up and running 24/7, the salaries of dozens of highly skilled support staff, the cost of producing new versions of the software, etc.

    So if a very light user listens to 100 songs in a month, even in this rosy scenario, infrastructure costs will end up costing $3. Profit is, at best, only $12 per month for this user.

    Case 3 says a user downloads 300 songs a month. Suddenly, infracture costs go up to $9/month and profit dwindles to just $6/month.

    See what’s happening? In the subscription model, how much profit you make depends on usage patterns. What subscription-backers overlook is that INFRASTRUCTURE COSTS INCREASE GEOMETRICALLY AS USERS EMPLOY THE SERVICE MORE.

    If a user just goes crazy and downloads 1000 songs in a month “because he can”, then even in the most optimistic cost scenarios, Napster is going to be paying more in infracture costs than they are pulling in subscription revenue. THE SYSTEM ONLY MAKES MONEY IF PEOPLE DO NOT USE THE SERVICE ON AVERAGE. The Catch-22 is when people stop using the service, they are more likely to cancel completely.

    This is the reason why Real and Napster, even after having signed up 500,000 or even a million subscribers, still cannot turn a profit. Right now, they probably have a deal where a fixed amount of that $15/month goes to the record company, leaving them to eat the highly variable costs of running the service. Paradoxically, as users employ the service more, the less profit the company makes. At a certain point of average usage, the company stops making a profit at all and either has to eat the loss or up the rates. And up the rates go, leading to loss of subscribers, which results in a smaller total check that goes to the record company, even though they may get a bigger fixed revenue per user per month.

    With the iTMS model, every time someone downloads a song, the costs are completely covered, the music company gets a check, and Apple tosses a nickel to the bottom line. iTMS may make less revenue per user per month, but it’s able to sell to far more users each month. It’s why iTMS has been profitable for more than a year now and why the argument for subscription services is just a fallacy at this point.
13. 

    king_alvarez

    Tuesday, June 7, 2005 - 5:44 pm · Reply

    NewType,
    I wasn’t really disagreeing with you. I went back and reread what I wrote and I realize that I didn’t clarify that I feel that it’s the record companies (and only the record companies) for which the subscription service is more profitable. If people have the ability to download an unlimited number of songs, the average number of downloads per user is going to be pretty high. In that case, the record companies get their money even though Napster isn’t making any money.

    That’s why I think the record companies are pushing so hard to get people to think subscriptions are the way to go. Either way they still make money, and even more when people end up buying the individual songs that they really like.

    It sucks for Napster, Real, etc because their only hope is to possibly make a few cents a month of each user (and they don’t even get that). But of course, since when did the record companies care about the distributors, artists, or consumers?

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