iTunes Store: Goodbye to break-even

“iTunes Store will be 10 years old next month. From its inception Apple has stated that it aims to run the store ‘at break-even,'” Horace Dediu reports for Asymco. “The business has grown so rapidly however that its profit-free nature has come under severe pressure.”

“What is known as iTunes today has quintupled in seven years,” Dediu reports. “Although cost of content sales are likely to have been preserved as a ratio (about 30%) the vastness of transaction volume (estimated at 23 billion item transactions in 2012 alone) implies that there are some significant economies of scale”

Dediu reports, “This implies that the operating costs are spread more evenly and that therefore the possibility exists for some operating margin. Put another way, 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.”

Much more in the full article here.


  1. What’s the big story here? iTunes is one of the engines that drives iPod, iPhone, iPad and Apple TV sales.

    Without iTunes, Apple would just be another run-of-the-mill hardware vendor indistinguishable from HP, Dell, Samsung and a million other hardware vendors.

    Without iTunes and the App Store that can after it, Apple might as well set up shop as Foxconn, a contract manufacturer, rather than an originator of seamless, knitted together hardware.

    1. While I don’t agree that Apple would be “just another run-of-the-mill hardware vendor” without iTunes, I do agree that iTunes is a critical piece of the Apple ecosystem.

      The comment about Foxconn is ridiculous, even for you, BLN. Your good points are ruined when you go way off the deep end.

      The analysts need to remember that Apple serves up a lot of free content, from iTunesU to free songs and podcasts and apps. That bandwidth is funded by Apple’s 30% cut on the paid content. But it is worth it because the free content draws a lot of people to iTunes and sells a lot of hardware, particularly iOS hardware.

  2. “Without iTunes, Apple would just be another run-of-the-mill hardware vendor indistinguishable from HP, Dell, Samsung and a million other hardware vendors.”

    You’re kidding, right?

    1. Don’t underestimate the effect iTunes has on purchasing decisions. I had a Palm and remember the trouble I had managing media. Now I leave the job to iTunes which does an admirable job syncing and organising my playlists, iBooks, music, videos and a myriad other things, not to mention managing backups and being a standalone music player on my Mac.

      iTunes is the unsung hero where its effect is felt rather than seen. That’s why Android vendors tout specs whereas Apple shows you what you can do with the hardware – with the help of iTunes of course working invisibly in the background.

      1. @BLN
        True on iTunes doing what you say. But iTunes is hardly the only thing that distinguishes Macs from Winblows computers by HP, Dell, etc. (mind-boggling understatement)

      2. Actually – as a customer I have not thought nor considered iTUNES as a benefit to my purchase… but BLN is dead on here.

        The brilliance of iTUNES gave birth to the APPs STORE for my MAC… like iTUNES it handles software purchases and updates. No more SERIAL numbers to remember and checking individual vendors’ sites for updates. iTunes did all that before with my songs and iPad apps. BLN you got it right MAN.

        The APP STORE and iTUNES are EXTREMELY key to APPLES success – as quiet and discreet that both might be for customers in their decisions to pick APPLE… it should be PRESSED harder as a MAJOR benefit. Hope Apple promotes this more.

  3. So, the billion dollar server farms that Apple is putting up all of the USA and in Hong Kong, (and I am sure every other unnamed continent) does not go into the $3.75 billion calculations. That must be the new math that the federal Government is using. How about those huge solar panel farms and fuel cells? Were they FREE for Apple to build and invest in?

  4. That extra income will likely go into the music and film industry’s pockets as Apple comes up with more unique ways to distribute content. Case in point the eventual iTunes music streaming service, movie and TV streaming, etc. But that’s fine because iTunes isn’t meant to make money, it’s just another conduit to sell more iPhones and iPads and iPods and Macs. If that means paying out the ying yang to keep it the premier distributor of content then so be it.

  5. “… It’s hard to imagine this level of operational expense for digital content.”

    Only if you have no experience operating a business and/or equate “digital” with free or low cost. An entire software and hardware infrastructure had to be built (and is still being built) to deliver digital content.

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