Apple Sells 25 Million Songs On The Internet! (1 Viewer)

[Lee Scoggins]

Apple AT BEST makes .10 per song. Reality is more like .03-.07 per song.

Brian, how do you know this? Do you work for Apple? I am just curious where these numbers are from.

 

[Chris Farmer]

Nah, there's not much money in the iTMS for Apple. Steve has said as much, and when you factor in royalties to the labels, licensing fees for the AAAC codec encoders, bandwidth costs, etc. Incidentally the last, bandwidth costs, are what I think is the limiting factor on the bit rate Apple and other can afford to offer. Any more and when you factor in everything else, you're losing money on every song you sell. I don't think Apple will ever make more then a slight profit off it. However, iPod sales TRIPLED with the introduction of the Mac iTMS alone, although sales numbers for after the Windows release are currently unknown.

The trends went down for a while, but they seem to have reached a steady level. Incidentally, this article puts the iTMS at 1.5 million per week, although whether that's simply dividing total numbers of songs sold by number of weeks in existence or the current state I don''t know.

 

[Michael St. Clair]

Lee,

You and I can have different opinions about the meaning of 25 million. But your complete lack of interest in the sales trend; that I find curious.

All I have stated is that the viability of the 99 cent download model is unproven (it is simply too early), and I still don't see anybody managing to counter that. It will be interesting to measure progress come April 04...hopefully the soundscan numbers are readily available (iTunes is on soundscan now).

Anyhow...

Apple's gross is supposedly about 29 cents (their own claim to the New York Times...they stated that they pay 70 cents to the label per download...the label pays the artist 11 cents). Apple seems to remain tight-lipped about their exact costs (marketing, bandwidth, hosting, development, tech royalties, etc), though, so no telling what the profits are.

 

[Lee Scoggins]

Apple's gross is supposedly about 29 cents (their own claim to the New York Times...they stated that they pay 70 cents to the label per download...the label pays the artist 11 cents). Apple seems to remain tight-lipped about their exact costs (marketing, bandwidth, hosting, development, tech royalties, etc), though, so no telling what the profits are.

So this leads me to believe that they could in fact be profitable on a per song basis. That's pretty good. It seems like a good business model to me - widespread consumer downloads, hot selling iPods, potential per song profits, low cost distribution channel, excellent brand building. Nothing would seem to indicate that it is not a viable market.

 

[Michael St. Clair]

I see people saying the numbers are increasing

I have seen no one make such a claim.

Obviously there was at least a spike when they opened the software up to the much larger Wintel market, but I have seen no claim from Apple or elsewhere that any actual unit sales growth has been charted.

 

[Dave Bennett]

Michael,
my apologies, when scanning the thread for the "turned a profit" quote I thought it was in your post. Turns out it was Seth L who said that. No harm intended, just a simple misquote.
I wish HTF had a "quote" button on posts like other forums. That would make mishaps like this alot less likely

 

[Pamela]

Direct quote from Steve Jobs:

Jobs has one more reason not to be concerned about the competition. "The dirty little secret of all this is there's no way to make money on these stores," he says. For every 99¢ Apple gets from your credit card, 65¢ goes straight to the music label. Another quarter or so gets eaten up by distribution costs. At most, Jobs is left with a dime per track, so even $500 million in annual sales would add up to a paltry $50 million profit. Why even bother? "Because we're selling iPods," Jobs says, grinning.

From a times magazine article.

 

[Michael St. Clair]

Well, that pretty much lays it out, doesn't it.

The opposite of the traditional razor/blades model. Break even on the blades because the profit margin is so high on the razors? Turning tradition upside down.

The potential problem is if the competition from Dell, Rio, iRiver, and others puts sufficient pressure on the iPod. Margins are very likely to decrease as competition mounts.

Like I said, the long-term viability of the 99 cent download has yet to be proven. If this segment is no longer offset by hardware margins, it is hard to predict what may happen.

Hopefully at some point the music fans can actually save money when they give up lossless quality, packaging, and physical distribution.

I'm not alone in thinking that it doesn't make sense to charge the same price for a lesser product, convenience not withstanding. I'm not opposed to pay-to-play downloadable formats, but the price needs to come down, or quality needs to increase.

 

[Kristoffer]

Ok, I hope this service becomes availble in Europe!
What quality are the songs in? 196kbs and what hz?

 

[RolandDeschain]

Like I said, the long-term viability of the 99 cent download has yet to be proven

I couldn't disagree more. It certainly has been proven, at least far more than the prior subscription model had been. Apple has proven that a per-song downloadable service can fly and will be accepted by consumers. The price is set by the labels, not Apple. If the price of these downloads goes down in the future, the labels cut will go down as well. I find it brilliant that Apple set the market this way, they are the only ones that can win with downloadable music because they also have the best player on the market. No other company has full control of both ends of the market. No other company can make money selling music online in and of itself without a cash cow like the iPod to augment it. Because they have to come out with these players at a significant reduction in price just to compete with the iPod, they are already slashing their margins. If there is a price war among the WMA players, they all lose. If Apple decides to take a $50 less profit on the iPod, then there may not be a market of any discernable size for the other players.

In order to compete with Apple, a company would have to be able to out design Apple by producing a "better iPod" while at the same time, introducing a music store that is more compelling than iTunes...

Good Luck.

 

[Patrick Larkin]

There is no competition, at least on a "zeitgeist" level.

And its not only about the iPod. Apple hopes after a Wintel user gets the iPod experience, they will understand a bit more the whole Apple experience. What they see in iTunes is available in iDVD, iPhoto and iMovie. The hardware is perfectly designed just like the iPod. Just like people are willing to pay more for an iPod, some may be more willing to pay more for a machine....

Trojan horse indeed.

 

[Angelo.M]

I fail to see how customers not buying a physical album is a negative.

Donning rose-colored (and perhaps star-shaped) glasses...

I mourn a bit each day for the (almost complete) demise of the vinyl LP, and I will mourn if the album as a concept or retail unit vanishes. Furthermore, I prefer to have a physical unit (like a vinyl LP or CD) in my hands; streams of digital information don't feel the same. And I'm not a Luddite.

Is there a place for downloading single tracks? Apparently. But not for me.

 

[Michael St. Clair]

I couldn't disagree more. It certainly has been proven, at least far more than the prior subscription model had been. Apple has proven that a per-song downloadable service can fly and will be accepted by consumers. The price is set by the labels, not Apple. If the price of these downloads goes down in the future, the labels cut will go down as well. I find it brilliant that Apple set the market this way, they are the only ones that can win with downloadable music because they also have the best player on the market. No other company has full control of both ends of the market. No other company can make money selling music online in and of itself without a cash cow like the iPod to augment it. Because they have to come out with these players at a significant reduction in price just to compete with the iPod, they are already slashing their margins. If there is a price war among the WMA players, they all lose. If Apple decides to take a $50 less profit on the iPod, then there may not be a market of any discernable size for the other players.

You quantify nothing. Your opinions on synergy does nothing to demonstrate the long-term viability of the 99 cent download model. Only numbers can. How many iPod buyers use iTunes. How many songs do they download? Months later, how many of those same buyers are still using iTunes? How many songs are they still downloading at that point? How much of their music to they obtain outside of iTunes? What are the trends?

Only he who knows the answers to questions like these can begin to assess the viability of the model. You cannot, and I cannot. The viability is unproven. I'm not being negative, I'm pointing out what is unknown. That which is unknown is neither positive nor negative, and pointing it out isn't negative either. Why get defensive?

 

[Brian Perry]

To clarify (although someone already kinda did), when I referred to the negative aspect of fewer physical albums or CDs being sold, my point was that the revenue was decreased, not that the nostalgia of owning actual albums was being lost.

 

[Lee Scoggins]

Only he who knows the answers to questions like these can begin to assess the viability of the model. You cannot, and I cannot. The viability is unproven. I'm not being negative, I'm pointing out what is unknown.

Michael, the problem with this logic is that you have also not presented any evidence that the viability will not work so it becomes a "he said, he said" thing. I think what has been established is that there is a very high level of customer demand for the service. I would suggest we all wait for the next progress report by Apple. In the mean time, maybe we can learn about the iTunes profits by reading some good Apple equity analyst reports. These folks usually estimate profitability of business lines. I do remember reading that the iPod has a huge margin and is a very profitable line.

 

[Brian E]

I couldn't disagree more. It certainly has been proven, at least far more than the prior subscription model had been.

It hasn't even been around for a year yet. How much can really have been proven in such a short time? Compelling, shows promise? Yes, but far from proven.

 

[Lee Scoggins]

or quality needs to increase

I agree with this. I would like to have ideally a 320K option or a full WAV option for my 99 cents. That puts it roughly par with a slightly discounted CD.

 

[Michael St. Clair]

I would suggest we all wait for the next progress report by Apple.

Absolutely. Funny that they were a lot more 'free' with their weekly numbers for the first few months (I'm guessing the continual decline had something to do with it)...I'd love to see weekly numbers now that they are serving the much larger Wintel market.

 

[Lee Scoggins]

I'd love to see weekly numbers now that they are serving the much larger Wintel market.

Do we know when the service went live? If it has been just a year or less, could we not just extrapolate your numbers thru July on a monthly basis from 25 million and then divide the remainder over the number of months hence?

That may get us in the right ball park...

 

[Lee Scoggins]

If we assume:
Service starts in End of March
April 200k * 30 = 6 million
May 125K * 30 = 3.75 million
June 89K * 30 = 2.67 million
July 52K * 30 = 1.56 million

You get roughly 13.98 million songs...25 million songs minus rounded 14 million equals 11 million
over August, Sept., Oct., Nov., or 4 months...or roughly 2.75 million per month or 91,700 per day.

That's a still very healthy number but it is off from the 222,000 that they are claiming. Maybe they are using 20 business days in a month and not including weekends....

Maybe they are seeing recent increases equalling 222,000 a day.

We just need more data.