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Discussion in 'Mac Blog Discussion' started by Ambrose Chapel, Oct 9, 2003.
Someone quoted Steve Jobs as saying something similar... about how there wasn't much money to be made in the music business, but that their ipod sales had tripled since the launch of iTMS.
Interesting to know!
I love how the WSJ is just right on top of all the news. I find it amazing that they can come out with the incredible insights in such a timely manner.
Of course apple is not making much money off of the itms. Apple never intended for it to be more than a slightly profitable venture. The itms follows a basic business strategy in that it is a loss leader. A company releases a product at a low price (one were little to no money can be made) in order to increase future sales of another product. Apple only developed the itms in order to increase sales on a product with a much higher margin, the ipod. The itms (unless the windows version provides substantially more sales than predicted) will only ever account for a couple of percent of apple's total revenue.
Apple is using the loss leader strategy to good effect currently as ipod sales increased to over 300,000 from around 70,000 in the same quarter of the previous year (these figures are off but i do not want to go look them up).
This strategy will also be used in the case of the windows itms both to increase ipod sales and to garner more interest in apple and its other products.
In my opinion the WSJ is not nearly as good as it used to be and most of its information is to dated to be useful. The majority of columns provide little insight that is not already obvious to anyone reading.
I hope they are right, because Napster is launching their service on the 29th, but if you pre-register now, they will give you 5 free tracks. I don't know if you get to choose the tracks or not.
Also, they have on their site, PC only, which is lame, considering their marketing material, such as wallpapers, etc have Mac download instructions.
there's a story on macminute about napster using wmp...no ipod compatibility.
it says at the bottom of the napster page that it is only for PCs and wmp is a requirement.
And the only Mac version of WMP that might be compatible with the DRM is the not yet released version for Mac OS X.
I will stick to not having WMP on my system.
I'm quite sure that the WSJ is mistaken - Apple makes somewhere in the area of $0.30 - $0.40 per song sold on iTunes. Considering they've sold something 12,000,000 songs now, and that the service is available on less than three percent of computers (You have to be running 10.1.5 or higher in order to use it - a huge number of people still run OS9), I think that's pretty damn successful. I know a buttload of PC-iPod users that are chomping at the bit for this. They hate MusicMatch, and how diifficult it is to transfer songs - iTunes and iTMS for Windows are gonna be big.
Considering those are gross profits, that's not much. Once you figure in the cost of goods sold--promotions, website maintenance, and other overhead, their numbers start to make sense.
I thought that they were mistaken too since previous reports had stated around .30, but they may have meant profit of .10 per song which would be reasonable.
If we assume that apple makes .10 profit for each song and they have sold approx. 12mil. songs in the last two quarters then they have made 1.2mil. profit. When this 1.2mil. in itms profit is divided by apples combined net income from the last two quarters (19mil. and 14mil.), we get that the profit only accounts for 3.6% of the total profit. Of course this is without figuring in initial startup costs.
This is not much, albeit more than apple probably expected, but the real profit from the itms is the increased ipod sales that it brings from being a loss leader.
Not that it -really- matters, but I just wanted to note that it reads Windows Media Player 7.1 or higher required.
The latest mac version is 7.1.3.0267.
[Edit: It -does- say PC Only, too, but since the requirement is WMP 7.1 or higher, it's not really yet clear -why- it is PC only.]
Apple has already said this. The Music Store is not to get rich off selling songs. It's a way to get people to buy iPods, and in turn Macs.
Joe Blow says "Mac's are cool, but my P3 works just fine". Then he downloads iTunes and starts buying songs. Later he realizes he really should have an iPod to put all that music. He gets one. He sees the quality and ease of use. Later he goes to the Apple Store and starts to notice how uncool his P3 really is. He gets a Mac and realizes how great it is and how he went so long without one. Then he too buys all the other nifty stuff Apple sells.
It's a brilliant plan, and Apple makes a little profit while they're at it too.