“Although Apple has repeatedly said that its iTunes Store operates at ‘just above break even,’ a thorough analysis of the service’s economics suggests it turns a profit roughly in line with the company average, with recent events paving the way for even greater gains,” Katie Marsal reports for AppleInsider.
Marsal reports, “Based on per-song cost estimates, the ubiquitous iTunes service generates an operating profit of at least 10 percent, and possibly as much as 15 percent, according to PacificCrest’s Andy Hargreaves. The analyst on Monday released a detailed report on the subject, in which he informed Apple investors that the economics of iTunes could soon serve as a boon for the company’s bottom line.”
“Applying that estimate to the $1.2 billion in revenue that iTunes is expected to generation in fiscal 2007, he believes the service will generate $0.09 to $0.14 in earnings-per-share for Apple,” Marsal reports.
Marsal reports, “Perhaps even more compelling, according to the PacificCrest analyst, is the incremental profit opportunity presented by the Cupertino-based firm’s joint announcement with music label EMI to start selling DRM-free tracks at an approximate 30 percent premium.”
Full article here.
[Thanks to MacDailyNews Reader “LinuxGuy and Mac Prodigal Son” for the heads up.]
Related article:
Apple hits major milestones: 100 Million iPods sold, 2.5 billion iTunes Store songs sold – April 09, 2007
Yea, but what if, like, everyone stopped listening to music, man? What then?
Huh?
<crickets chirping>
So the idea is to make money in business?
How’s that Zune Marketplace doing?
Zune? Haven’t you heard? Pink is the new brown.
“”Although Apple has repeatedly said that its iTunes Store operates at ‘just above break even,’ a thorough analysis of the service’s economics suggests it turns a profit roughly in line with the company average, with recent events paving the way for even greater gains,” Katie Marsal reports for AppleInsider.”
Cringely predicted this AGES ago. Over time, as movies and music and games (basically zero marginal cost) are selling like crazy on the iTS the profits will scale up very fast (geometrically) and the iPod profits will be down (because of diminishing returns of bigger HD’s and longer battery life etc means you can keep using the same iPod for longer and longer)
Once again, give Cringely his due.
“Zune? Haven’t you heard? Pink is the new brown.”
Sounds like the title of an xxx movie, “One in pink, one in stink.”
.XXX,
My buddy Watler says “OVER THE LINE!!! I’m sorry .xxx but you went over the line… that is a foul.”
The Dude abides.
@Mike
Re: iTunes increasing margins: That’s the “1 + 1 = 2” of Intro to Economics 101. I wouldn’t give anyone their due for stating the bleeding obvious.
Re: Diminishing returns of iPod profits due to bigger harddrives resulting in lower sales: Nonesense!
There is no evidence of this. People buy new ipods for a variety of reasons, as witnessed by model refreshes and new colours which always give a big growth spurt. I myself have bought 4 ipods, because 3 have stopped working!!!
The widely touted low profit figure of two or three cents per sale was based on paying by credit card for purchasing a single tune but the average sale was never going to be anywhere close to $0.99. $10 gift certificates produce better margins especially when purchased electronically, even better margins on other ways of purchasing. Tunes purchased on the same account as more expensive items like movies (ie over $10 sales) the credit card fee will drop to approx 3% from the approx 18% on a single tune.
Furthermore Apple hasn’t always said the store operates at about break-even, they have used phrases like ‘generated a small profit’ when asked in some earnings conference calls.
@Mike
Can’t agree either that iPod margins will decrease over time. Component costs, labor costs, marketing costs all go down per unit as Apple sell more. Just look at last quarter’s profit. 20M pods rocketed profit to over a billion!