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Apple Makes no Profit from iTunes
Some Beech writes: "The Register has an article about the lack of profit from iTunes. Also mentioned in a Seattle Times article dated 27th October, it seems Apple is relying on iTunes to drive iPod sales rather then being a profit centre on its own." Another reader pointed us to Apple's details from the Analyst Meeting.
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I wonder if anyone but RIAA makes money on this? Artists? Do the credit card companies make money on this? They probably make a mint! Methinks that Apple should be able to strong arm Visa a little into better rates on micropayments.
#define DRM chmod 000
AMD makes no profit from CPUs.
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It strikes me that this is a rare version of the hardware/software business model.
Normally, companies will take a loss on the hardware (i.e. x-box, nintendo, etc) and make up the loss on software..
Oh well, whatever works for them.
More Caffeine. NOW
if they can't make money at $.99 a song, then why are 20 companies popping up every week doing the exact same thing with no hardware business?
MARIJUANA, SHROOMS, X: ONLINE?! - E
My Linux Command of the Day site : LCOD
I don't mean to sound rude, but wasn't this the business model all along.
1. Create Cool player
2. Distribute Content for cheap
3. Become Standard by which everyone else judges you by.
4. Establism market dominance
5. Profit on Player!
6. Raise price on Content or lower cost of distribution.
7. Profit on Content!
I don't seen anything new or mysterious there... And for the rest of you, you now have a couple more steps on that profit model you've been working on!
Ted
Fantasy remains a human right; we make in our measure and in our derivative mode... -- JRR Tolkien
Hey hey, Apple in their own right does good things for a market that would be dominated by cheap hardware. Its simply a matter of choice I would much rather own a Mac then a PC but market dominance is in PC's favor so gaming, cheap hardware etc etc are in the favor of PC's. Apples are easy to use, efficient and relatively fast, oh and they look pretty cool too. The iPod is right now the top choice for Audiophiles because it offers a ton of space in a quality nearly artistic design. Hard to argue with what sells.
You have been sig'd
Drive the sale of a piece of software/hardware/printer/whatever up by having a low price where you make no benefit, as long as you can recoup on software/hardware/ink cartridge. Rant or discuss as much as you want but as long as they make no loss either this is a good buisness model which sure as hell atrract probably more customer to them than anybody else in the download music market.
C. Sagan : A demon haunted world:
http://www.amazon.com/gp/product/0345409469/
visit randi.org
So they are selling songs for 99 cents and they keep none of that? Where does all that money go? I know it doesn't go into the syringes of the musicians. correct me if I am wrong, but wasn't the internet supposed to put more money into artists pockets wtih all this "direct to customer" type stuff?
duh.
What about the RIAA labels? Have they been making any profit?
More importantly: How much have the artists made?
The original article should be modded -1 flamebait -- too bad it's not on Slashdot. It's a rather impressive collection of loaded terms and inflammatory phrases.
"They redundantly repeated themselves over and over again incessantly without end ad infinitum" -- ibid.
With the hefty premium Apple pays to the Music Industry (TM) it's a wonder they make enough to cover their bandwith/maintenance costs. I'm surprised Apple couldn't negotiate a better deal with the RIAA. Then again, when has the RIAA been eager to embrace more effective (read "online") distribution medium to begin with?
I just hope Apple will hang on to the store as a service to the people, so long as it can cover it's own costs. Up to this point it seems to be the most liberal in terms of DRM/user rights.
it seems Apple is relying on iTunes to drive iPod sales rather then being a profit centre on its own
In supermarkets this type of thing is known as a loss leader, where something is relied on for boosting sales of another product rather than making money for the company.
When anger rises, think of the consequences.
Confucius (551 BC - 479 BC)
They have created a brand that goes beyond Mac. Now they have Windows users using a Mac program! And Microsoft can't stop them! Even if they do break even they will see the profits when people see that they can actual program and switch.
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Since realizing profit from a particular endeavor can be manipulated with extreme flexibility, claiming no profits could easily be a method to discourage competitors. ...Dear competitors, gee this is a tough and profitless market, that is absolutely not worth your time. Please pursue a profitable venture while we foolishly throw away our money, sincerely
Steve Jobs
Is the New Business Model Guaranteed to Reap Massive Profits From The Internet one where you sell the hardware at a loss (Nintendo, PS2, 3DO, etc.), then make it up by charging a premium for the software?
I wish these Captains Of Industry would make up their minds on how to best fleece the public; it's getting troublesome keeping track.
Schwab
Editor, A1-AAA AmeriCaptions
Funny how this is the opposite of what Microsoft did with the X-Box:
Microsoft undercharges the cost of the hardware to increase software sales, while Apple undercharges the cost of music to increase hardware sales...
I guess we'll have to wait and see which idea works in the long run.
Apple has always lost money software as a driver for hardware sales. Do you really think they make money on Panther? they sell it for less than MS sells their OS and to a lot fewer people. Yet it (OBVIOUSLY) contains a lot more research and effort so their costs are much higher and profits not much on software.
Some drink at the fountain of knowledge. Others just gargle.
But it also really applies.
1. Invest millions in a huge infrastructure to sell songs very cheaply on the internet.
2. ???
3. Profit!
Uh, this is old news. It's not even news.
The very day iTunes for Windows came out, I read articles about people from Apple saying they ran it with no profit and that it drove iPod sales. People linked to it in the last article!
Thanks, Slashdot, for being FAR BEHIND as usual.
"Sufferin' succotash."
flamebait...
Steve Jobs had a lot of interesting quotes... including that Napster and MusicMatch have "started money-losing businesses"
MacRumors has the full quotes
I read this in Newsweek last week. Is this really a surprise given the history of the MacOS and their proprietary hardware?
Doesn't Apple always make their money by selling hardware rather than software?
And Microsoft always makes their money selling software rather than hardware. That's why MS is so rich, and Apple is so poor. IMHO, Apple stuff is nicer to use.
What about Pepsi and McDonalds? Reportedly both companies are paying full price-per-song (.99) for their promotional give-aways...you can't tell me that $1.1 billion isn't a profit; if not, their overhead to profit ratio is more rediculous than 3DFX. Considering Apple's history with that company, they should know better than to repeat their mistakes.
I'm not buying it.
Perhaps they think they aren't turning a profit yet, but $4 million on the first day of the iTunes for Windows launch seems like a fair bit of money to me.
Damon,
http://actionPlant.com
She's only marginally attractive. Bonus points for wearing latex only get you so far.
Some of the daemon babes are hot. But its easy for a ragin homo like yourself to ignore hot ass.
Hey, and if you need a cum dumpster, she is perfect, just shut off the light and pump away.
If i was a chick around you though, I wouldnt shut off the light. I know that you would be doing that to pretend the vagina is an anus.
OK - so they're not making money now. But wait a few years. Apple has put themselves in a good position to dominate the market with iTMS. In 5 years time when we're down to the few remaining successful iTMS type places, and the RIAA/Record companies have become hooked on the revenue stream from these sources, Apple et al. will be in an excellent position to renegotiate with the RIAA for a bigger piece of the pie/profits.
Right now the power here is in that hands of the music industry because most of their music is still sold through the traditional channels. If they didn't feel like selling through ITunes, they could do so with little pain.
Where it gets interesting is when on-line distribution does become the primary distribution mechanism, the music companies are going to lose their power because they no longer hold the keys to the kingdom. Why would an artist sign a deal with Warner or Sony when they could sell music directly to Apple and take home more money?
The failure of the music industry to make a palatable alternative that they can control will be their demise.
This sig has been temporarily disconnected or is no longer in service
I seriously doubt the availability of multiple operating systems played much of a role in the success of the PC. The fact that Windows only runs on a PC probably has more to do with it.
Isn't Microsoft responsible for most of the hardware specifications for PCs, anyway?
--
the strongest word is still the word "free"
I for one am glad to see you keep supporting Apple because of your obvious mental handicap.
Keep reaching for those stars!
Had programming been the dealmaker for switching, Windows would have users.
668.5
This is not news. Hasn't Steve actually come out an said this exact thing several times since the store opened? This why all those comparisons to Napster 2.0 and the other online music stores is pointless.
my guess is that apple pays a few cents more for the rights to offer a weaker form of DRM that benefits consumers. the others are probably trying to pocket a few pennies by skimming on consumer oriented drm.
Some drink at the fountain of knowledge. Others just gargle.
Apple's strategy is simple, but counterintuitive if you are used to thinking of things separately.
/might/ not be sustainable, but over the long run will break even as their costs go down. Where they make money on this deal is in the sale of the iPods, which cuts the sting of loss by a good bit. Their hardware is cheap (they get XServe RAIDs at cost) and long term expenses seem to be (relatively) low.
Apple has had a dramatic increase in the number of sales of the iPod and have established market dominance with the iTMS. It
In short, they are taking a business risk. its a business risk, but the potential for gain is good (by being first to market, having the best mindshare, and having a secondary product which will make money), and I am positive that I would call it "potentially fatal" or reckless, which is what the Register seems to imply.
Integrate Keynote and LaTeX
668.5
In the case of Apple they certainly have development costs, equipment costs, bandwidth costs, etc. And they are certainly accounting for those costs in such a way to make sure that no profit is seen at the ITMS. For instance, iTunes, which was previously a perk of the OS, can now be funded by the ITMS.
Apple would want to do this for two main reasons. First, a highly profitable music store might invite more competition. Second, as download sales increase, they will likely pressure labels to give Apple more of a cut. This will be easier to do if the music store regularly loses money.
I expect the general media to miss such observation. What is funny is when the like of Fortune and the WSJ does not account for such factors.
"She's a scientist and a lesbian. She's not going to let it slide." Orphan Black
What an absurd article.
Apple has a product (the iPod), upon which it makes a lot of money. Apple creates a system (iTunes and the iTunes store), whereby it can drive more sales of its product.
Now, I am supposed to be upset with Apple because it doesn't make money providing the media service, and it cooperates with the RIAA's licensing demands to do so.
Furthermore, I am supposed to prefer the idea of a 1-cent tax on my blank CD, or an addition to the income tax.
The mind boggles. Who should administer the income tax disbursements? How should the money be allocated? By volume? To promote a social musical agenda? Why should my CD carry a surcharge if I only want to burn a Linux distro, or back up my stuff onto it?
DRM is a big problem, sure, but this offers no answers. Apple is trying to build a dominant brand in the digital media distribution business, and doing well at it. For now, to offer the digital media that people want, Apple must deal with the gatekeeper to those media. That gatekeeper is the RIAA. Perhaps that will change someday and Apple or somebody else will be able to make money. For now, it seems reasonable enough to me that Apple is providing a service in the only manner in which the service can be realistically provided, and positioning the traffic and customer base to equate digital media with iTunes for the future.
Look they already have 80% of the online sales. if they supported other formats at best they could pick up a few new sales. So why should they bother?
Some drink at the fountain of knowledge. Others just gargle.
This is old news in investment forums, where people quickly figured that the impact on the top line would be small, and in the bottom line darn near zero. Most of the money ($0.75 to be precise) goes to the artist/copyright holder, another chunk goes to the record company and Apple is left with about $0.10 measly cents per song or just about enough to pay for the bandwidth required. They don't seem to be losing money either, so it is not a loss leader.
Lots of negative press regarding iTunes today.
.. and once you have used it you realize how shitty Windoze software is ..
..
The reality is Apple makes damn nice software
I even find that M$ Office for OSX looks and feels nicer than the Windows version
It's called 'creative accounting'. After all the MPAA claims that Spiderman made no profit and it was one of the highest grossing movies in the past few years, but it didn't make a profit. Apple probably took some lessons from the ??AA on how to do the accounting so it doesn't make a profit.
However, I guess it's also possible they are still recovering their fixed expenses to setup the network so they aren't profitable _yet_.
Things you think are in the Constitution, but are not.
Reading the article at the Register... it sounds like they're blowing things out of proportion. The quote from Jobs that they focus on is: "We would like to break even/make a little bit of money but it's not a money maker."
While this could mean they are taking a permanent loss, it could also mean it is a slow profit that hasn't quite surpassed the initial one time investment portions of setting up iTunes... Or, it could even mean that they do break even or make a very small profit, but the profit is so small that in the large picture of the companies profits it comparatively makes no money...
I'd want to see some actual numbers and the real math before coming to any conclusions... The article simply jumps from the quote that iTunes isn't "a money maker" and enters areas of rampant speculation, leaning a little in the tinfoil hat direction.
they only run 80% of the online music business.
They fail it!
--
the strongest word is still the word "free"
If this becomes more and more popular and radio stations play less and less commercial music, these "professional musicians" will end up even more broke than they already are. Radio play is the bulk of the artists paychecks.
This is good for Apple - I suspect they're able to keep a higher percentage of the $.99 on those sales. Less RIAA strong-arming, less "fuck you - we're the Rolling fucking Stones" negotiating pressure.
Perhaps the mainstream content is a loss leader to sell iPods (good plan), and the vast ocean of indie content will actually be profitable in its own right.
"[Napster and MusicMatch have] started money losing businesses and I'm perplexed as to why." - Steve Jobs
More interesting Quotes from the Apple Analyst Meeting:
MacRumors
What the article fails to mention is that iTunes is only breaking even because they need to count development costs. Apple's making $0.4 a song, or something like that. After they sell enogh songs to pay for the software development, the software maintenance costs and server costs will be all that's left, and Apple will make more money. You need to spend money to make money, as everyone knows. Calling the Recording industry pigologist is just fucking stupid. Yeah they don't pay money to give you a digital copy, but someone's got to take the risk on fronting a band. Apple sure isn't doing it. Same old bullshit from the register. They even metion compulsory licensing, as if a communist system where arbitrary taxes are created for a service that are controlled the govt is a good thing. It will only be good for labels with good lawyers and good lobbyists, not good talent.
What point do they break even at, then? If they're making like 1c profit now... most people would accept raising cost to something akin to $1.10/song, which is in turn 11x the current profit margin. With microsales, small increase will lead to exponential profits.
Yes, Apple still bows to the RIAA. But I think that's just for now. They may be propping the RIAA up right now, but their days are still numbered. If an artist can go 'independent', sign up with a label like CDBaby, and still get their music on the iTMS, they'll probably gravitate to that over time. Even if they make no more money than before, they'll keep the rights to their music, which is worth a lot to them.
Trying to turn the world upside down on its head wouldn't have worked...it DIDN'T work. You have to bring people to the store with the music they know - the music that is only available from RIAA labels. Once they're at the store, you can get them looking at the stuff that isn't RIAA affiliated. Once people start looking to places like the iTMS to discover music, the relative promotional clout of the RIAA will grow less, and they'll have to change their focus to stay in the business.
Step 2: Make your online music service the de facto standard so record companies will reduce your cost to a reasonable level.
Step 3: Profit
Right now Apple is paying way too much per song. It's probably the concession they had to accept in order to sell the music online. However once iTMS becomes The Place to Go for Music, if it isn't already, Apple will no longer have to accept such crazy prices. When that happens the service will be making a profit, and probably a healthy one at at that.
it's hard to take the article seriously with its 'talking down to first graders' tone
...make me feel less than warm and fuzzy
sentences like this....
It doesn't make Steve Jobs feel warm and fuzzy, however, because he thinks he sees a real nasty, short-term business opportunity.
This is incorrect, I am assured by mac and linux fans that only a monopoly can prop up one product with another.
The Register article reports a lack of revenue to Apple from the iTunes Music Service. This is very different from a lack of profit from the store. According to Jobs, "most" of the iTMS revenue goes to RIAA members, which leaves perhaps nearly half of the revenue going to Apple.
when bands will start selling their songs directly to Itunes, without going through the record labels. Then prices will start going down or stay the same, and /or Apple will make a profit, and/or artists will be better paid.
I write a regular newspaper column about the Mac for The Seattle Times, and had a briefing with an Apple iTunes product manager back in mid-October. I asked whether there would be an affiliate model with iTunes in which referring visitors to specific albums or songs would generate a commission.
The product manager said very clearly, on the record, as he and other Apple people have over the last several weeks, that the margin is razor thin with iTunes, and that they're running the service in order to sell iPods and encourage people to use Macs. They believe that the artists make money on the deal (how much is another issue), and that because they're selling so much related hardware, that's their real business.
So there's no real story here. Apple hasn't been hiding the fact. I mean, this is a low-margin business anyway. Say Apple was charging $1.09 per song and netting 10 cents each. If they sold 10,000,000 songs per month that would be an extra $1 million. Big woop. So it's better for them to keep margins low and sell their very high-margin hardware.
I can't tell you the number of friends who went out and bought new PowerBooks and iPods recently -- the iTunes store just flipped them out and they gave up their old PC laptop. The music will give Apple a larger hardware marketshare.
Freelance tech journalist for the Economist, MIT Technology Review, Macworld, and others
There's a lot of ways to cut up a business model. Sure, Apple doesn't make money on each song sold in the iTMS, but that's not the only revenue generator - i.e. the iPod, branding, etc.
The same is true for the other folks like Napster. There are other revenue streams that can be calculated in the business model. And as we all know - there's more than one way to solve a problem.
Maybe they have side deals with other companies, maybe they have different contracts with payment companies, with record companies, etc.
Just because Apple can't make money on iTMS - doesn't mean it won't work for others.
It's just a matter of how smart and saavy your business folks are...
Remember, the RIAA is, more or less, a huge umbrella for the big record labels.
It's the labels that make money. Not the stores, and (typically) not the artists.
"Things are more moderner than before- bigger, and yet smaller- it's computers-- San Dimas High School football RULES!"
But there are serious problems that will prevent this from happening, however wonderful it might seem:
1) Different people listen to different quantities of music. Someone who downloads 500 songs per year will therefore make the government pay 500 times as much money to the artists than the guy who only downloads one song. If I were that guy downloading one song, I'd not be too pleased about paying for some guy I don't know to listen to some artist I might not even like.
2) If there is no cost incurred to the user for downloading a song, many people will download huge numbers of songs, many of which will simply get thrown away. A song with an attractive name might get many downloads, even if no onne likes it. A corollary problem is that of bots being used to increase an artist's download quantity, and therefore unfairly make him money. There is, of course, no 100% reliable way to distinguish between a bot and a human.
3) There would be no way to track exchange of songs. If the songs have no DRM-like restrictions, than I can give a copy to my friend, an no one will no about it, so the ratings won't increase correspondingly. Even with the most advanced statistical methods, it is not possible to know just how many copies of a song have been made unless one actually does a study for each song (different songs that appeal to different demographic sectors will be copied more or less, etc). The only solution to this would be to somehow institute a mandatory reporting system, by which the federal government would know each time a song changes hands... but I'm sure such a system would not appeal to all you anti-DRM folks, as it could concentrate a frightening amount of personal information in the hands of the government.
4) What about international downloads? Would this just be the US government funding this with US taxpayer dollars? Or a consortium of countries? But what if one country downloads more music than another, and how do we farily assess which countries download what? Frankly, it'd be hard enough to get the US government to implement such a scheme without making it suck incorrigibly; I certainly can't imagine UNESCO, the WTO, or another international body doing it.
5) Even though distribution costs are small on the internet someone still needs to supply the servers from which songs are downloaded before they are shared. As it would be impossible to do this profitably when one could just get the songs from a P2P service, this too would have to be run with taxpayer dollars.
6) Most people of the free world--especially Americans--are mistrustful of the government interfering in markets, especially when it come to effectively monopolizing information markets as public goods. This belief is certainly not just superstitious, and it prevails regardless of how noble the intent of such schemes. Therefore, it would be damn hard to drum up popular support for such an initiative.
Conclusion:
The arguments above are just one example of how totally free exchange of intellectual property simply can not provide the producer with fair compensation. The idea is almost a contradiction itself. In economists' language, the Internet provides us with the power to treat what is still a scarce economic good as if it were a free good--ie, common property. Yet the Tragedy of the Commons remains painfully relevant: in the end, someone has to pay.
--AC
Hey wait... What's Phase 2?
Why would Apple's iTunes for Windows software disable competing software if they didn't make money off the iTunes service anyway? I'd think they'd want as many working software options available for their iPod as possible to increase sales of the hardware. Even if Musicmatch does suck, think about it, with this suspected business model, they would be doing Apple a favor.
Cthulhu Saves.
What could Apple possibly gain by cooking their books to make the iTMS look unprofitable? There are plenty of other tax loopholes a large corporation could use, ones that won't make the shareholders question a venture that appears to be costing the company money.
Organizations like record companies and movie studios, on the other hand, DO have something to gain by making things appear unprofitable-- it means they don't have to pay a dime to people who are promised a percentage of something's net profits. Just ask Winston Groom, the guy who wrote "Forrest Gump." Despite the movie grossing almost $700M (not including merchandise sales), the studio claims they somehow still haven't made a profit on it, and thus don't have to pay Groom a cent. (Just think, these are the very same people who are trying to lecture US on ethics regarding piracy!)
The iTMS is fulfilling the goals it was designed for-- to give people a place to legally download music, and to be a loss-leader that drives iPod sales, which do make Apple a tidy profit.
~Philly
- Jobs doesn't care about making money for the labels. He cares about making money for Apple.
- Apple can afford to run the iTunes Music Store (iTMS), at somewhere close to break-even, because it drives sales of the very-profitable iPod, not to mention Apple computers.
- Thus, the iTunes Music Store (iTMS) can fail to make money, as a distinct entity, but still be considered a very successful enterprise by Jobs, his board, and the stock market at large - with no contradictions implied.
As for the online music store competition - the hordes of me-too 99-cent wonders - the lack of iTMS profitability, and their own absence from the high-margin hardware market, bodes ill. I would guess that they and their stockholders need to be prepared for a rough ride ahead.-renard
Well, in this case not RTFA has degraded what could be an interesting debate on Slashdot.
So, for those of you who didn't take the time, the author of the article seems to suggest that creative works will be payed for by taxes. By paying the taxes, we will all legally be able to download and share at will. He also suggests that this is the accepted and expected outcome by those in the know.
First off, I have never heard this point ever seriously considered. If it is, however, I am incredibly concerned. Do we really want creative works to become a socialist venture? What happens when artists sing controversial music, especially that which goes agains the thinking of the government? Would the government just revoke their payments? What would the US have done in the 60's if it was footing the bill for both the Vietnam war and the artists who were crying out against it? What would foriegn governments do?
I'd rather keep music in the free, open market so I know there is no pressure on squashing dissident views from artists. Artists have historically brought about the greatest changes in thinking. This would be much tougher in a creative-socialist market.
-- Fighting mediocrity one bad post at a time.
...that Apple would not have support costs, would not have to pay the RIAA, would not have to pay credit card costs, etc., etc?
Contrary to the semi-literate ravings The Register cranks out to boost readership and, hence, their own revenue, (go look up "yellow journalism in your history books, boys and girls. God, it's embarrassing to have that rag associated with this industry.), the rest of the world does not work on a gratis basis.
No one is ever going to prevent the record industry from charging whatever it wants to charge until someone else puts together a different marketing structure that, somehow, charges less. And, oh, when that happens, people will find out just how altruistic their favorite musicians really are. Entertainers are like you and me: they don't want a pay cut.
It's hard for me to believe that Apple didn't know this going in, and has always positioned music sales as a loss leader for the iPod.
-- Slashdot: When Public Access TV Says "No"
And to add insult to injury, RIAA's Carey Sherman (at yesterday's Educause roundtable in Anaheim) took a backhanded stab at iTunes claiming it was an "old business model." [One of the new business models he mentioned was an iPod loaded with locked music files -- you pay to unlock each song.]
Sherman's happy to be selling to Apple, but what I gathered from both him and Jack Valenti is that the RIAA and MPAA are hoping to one day force all of us into a utility pricing model. If you pay the monthly fee, your songs and videos will play. Skip a monthly payment, however, and all of your music and videos lock up tighter than a coon dog full of 12 pounds of government cheese.
Methinks that Apple should be able to strong arm Visa a little into better rates on micropayments.
Um, since Apple absolutely relies on credit card payments for the service, what leverage do they have to "strong arm" any credit card into better rates? Now maybe if American Express or Mastercard gave Apple a better rate and Apple then advertised "Use Brand X credit card and save 10 cents per song!", then perhaps there would be leverage to encourage the other companies to match the better rates (and then Apple could make the discount go away, since it was temporary only - and... PROFIT!!!!).
Other than that, HOW? Send Guido over to break some knees?
Apple offered Indies the same contract as the Big-5. It was a take it or leave deal. Meaning the indies get the same return from Apple as the Big-5, and they now have the opportunity to return those percentages directly to the artist or become greedy corporations. I know CD-Baby mentioned that they would take a flat fee/percentage from all artist they distribute and the remainder would go to the artist in monthly checks (since Apple cuts the labels check frequently). Whether other Indie labels are doing the same I'm not certain.
When you lower the cost of complementary products that you sell, you increase demand for your product. This is how IBM makes money giving Eclipse away from free. This is sound financial / economic sense.
if they can't make money at $.99 a song, then why are 20 companies popping up every week doing the exact same thing with no hardware business?
.com bubbles or selling players or anything. It has everthing to do with the RIAA industry wanting to maintain their outdated unit-price business model. Rather than using their imagination to figure out a subscription licensing model that would allow for a true celestial jukebox, they are forcing Apple to accept a price-per-download license (with DRM, and a limited catalog) that only meets peoples' needs because it's the only thing available.
This has nothing to do with
Be smart, avoid pay-per-download like the plague unless you like the idea of paying for a CD at CD prices, but without the CD. That's what the established record industry would like (I'm sure it fits nicely into their existing PeopleSoft modules), but it's even less that what you get from them now, with a MUCH poorer selection than what you find at even Best Buy.
When I was a kid, we only had one Darth.
Good thing Apple's Senior Vice Pres didn't come out and say the same thing in mid October.
You know what?
That, my friends, is as foul as anything the RIAA is trying to do. The some who burn music CDs want to rest of other, who don't, to pay for their little hobby. And it won't be a penny a CD as the twit at the Register claims. To compensate for loosing the income on a $14.95 CD, it's double, triple or more the cost of CDs. Now CDs are about 20 cents. Then they'll be a dollar or more.
That is foul and the Andrew Orlowski who wrote the article is no different, in moral terms, than the execs with the RIAA. Both are deadbeats.
A couple people have made "I'm surprised Apple didn't work out a better deal w/ the labels" comments -- I wonder if Jobs doesn't have a master scheme based on his experience with pixar? Their initial deal (for the first 5 movies I think?) was giving disney a lion's share of the profits.. but now, with Pixar's name associated with hits like Toy Story and Finding Nemo in the public consciousness, Pixar's in a prime position to renegotiate. Maybe Jobs is trying to position iTunes in a similar manner? There's no way Apple would raise the price of songs.. that'd be a disaster.. but if they brought down the costs of the songs to apple (i.e. reduced the music label's shares) a few years from now, when the music companies are depending on the income from the online music sales, then Apple could get a bigger slice of the pie.
[note: I'm going to pull a lot of numbers out of my ass for this post, but it should, at the very least, help you grasp the magnitude of the iTMS business.]
... that's after the RIAA, credit card companies, and music labels get their cuts.
... exciting stuff, but I think most of the expenses here can be rolled into the people section above, and the initial investments below.
.. that comes out to about $100k per week.
... we've accounted for about 75% of the revenue generated by those itty 34 cents per song. The other 25%, or $125,000, gets shuffled back into a bank account to repay the initial investment. At the current rate of 1.5 million songs per week, that's about 6.5 million bucks in a year.
Several people have pointed out that Apple's slice of the pie is 34 cents per download
Last week people downloaded 1.5 million songs from iTMS. That breaks down to about half a million bucks in revenue, per week, give or take a smidge.
Lets see where that money goes:
- People! The big money burners. If the average salary of a person working in the iTMS department is $60k (a tad high, I think), it would take 400-something employees working exclusively on the iTMS project to eat up all that cash.
- Hardware! Well, they probably have a nice contract with Akamai for content distribution, and/or fat pipes at some fancy data centers (think Exodus/C&W). If they're payin' $2M a year for iTMS hosting services alone, including hardware and what-not, that's about $40,000 per week. It could be double that, it could be half that. Hard to say, but I have a hard time thinking it would eat more than 20% of their weekly revenue ($100k).
- Development! iTunes for Windows and Mac
- Advertising. Hard to say how much advertising costs, because they're "integrating" iTMS ads with all their other campaigns too: iPods, iMacs, and other iDoodads. Hmm. Lets say they're dropping $5M over the course of a year to promote iTMS, in addition to everything else
- The initial investment. This is probably why they're not "profitable" yet. Getting iTMS off the ground with that much content and usability testing probably put a dent in the war chest (which still has a few billions in it).
So, looking at this on a weekly basis: people (~200k), infrastructure (~75k), and marketing (~100k)
This is, of course, before the big promotions kick off, and before the Windows market embraces (maybe) iTMS.
I think the future is bright for Apple, and the notion that they're not going to make any money on iTMS is ridiculous, as is the idea that iTMS is merely a prop for the iPod.
---
So, considering my disclaimer at the top, I'm VERY keen to hear what other people think of these estimates. Did I miss anything big? Should I have gone to bed an hour ago?
Cheers!
why isn't this thread showing up in the apple section?
The more popular iTunes becomes, the more leverage they have over the RIAA. Assuming continued popularity of iTunes, sooner or later they should be able to negotiate lower fees paid to the RIAA.
The article compares compulsory licensing to a tax and the benifits of downloading music to a public service (roads, prescription drugs, and health care).
Music is NOT a public service, it is a form of entertainment. The only way to make a tax fair for entertainment would be to make ALL entertainment paid for by revenues of the tax. Even if the tax is just an online tax, all online entertainment would have to be "free", because if the tax only covers a few things, there will be an online tea party. And if all online entertainment is free, the tax would be outrageous. It would have to pay for music, movies, games, porn, etc... You think spamming is bad now, just imagine all the schemes fighting for that "tax" pool.
Plus, the article seems very much against the RiAa(TS), but i can imagine that the RIAA will still figure out how to get its share of compulsory licensing fees.
I believe that as a human being, it is my duty to help improve my community, and give a helping hand to those that need it. But I sure as hell don't believe it is my duty to buy a bunch of P2P freeloading music addicts a $0.99 song.
Compulsory licensing fees for music is wrong and make only the RIAA and freeloaders happy.
I am living proof of the Peter Principle
Your exactly right. There's still value in people who find talent, get it recorded and market it, but with the distribution channels changing, the major labels aren't going to have a choke hold on that process anymore.
If Apple plays it's cards right, they'll make it easy for even the smallest label or promoter to get music onto their system. This allows for smaller producers to provide music for smaller and smaller niches. Most of these won't make big money, but some will, and it will increase the likelyhood that small bands can make a living.
The major labels might stick around, but my sense is that they'll take a serious downfall as the margins they've been getting fat on will shrink. Apple said they aren't looking to make a profit on ITunes, and that means, that if another label can come and offer them break even pricing at 49 cents a track or 10 cents a track, Apple will do it in a heart beat, and that's what will kill the labels.
This sig has been temporarily disconnected or is no longer in service
Apple doesn't need iTunes to make any money. They've got a big wad of cash in the bank, and the iPod to boot. What will happen over time though, is that as iTunes grows, Apple gains more and more power vs. RIAA. Who knows, if 5 years down the line, RIAA doesn't renegotiate a better deal, Apple may be in a position to cut them out of the picture altogether.
They make albums so they can build demand for concerts (the record companies take most of the album profits), and then they make money on concerts.
Laugh while you can, monkey-boy!
toast! if you actually listen to the QA session, they promise to allow your computer to make perfect toast.
I imagine that if Apple was only in the business of selling IPods they'd do just what you are saying. But Apple also wants you buying their computers. By supporting WMV, then they'd be providing a foot hold for Microsoft in their camp, and they definitely don't want that.
:). Maybe they'll release a game console/set top box. Seems the next logical step in their game plan.
ITunes was released for Windows, as a way to get more people into the Apple family. Itunes only works effectively with an IPod, and if they can get you to buy into the IPod and ITunes, then they can start convincing you of how nice it would be to own an IBook, etc.
The power of Apple is it's ability to integrate everything together so well. You just hook stuff together and it just works. Sure it's proprietary, and you pay a premium, but damn if it doesn't do it's job beautifully. Apple long ago gave up on having a business computer. Now it's all about being a media console. Buy music, make music, buy movies, make movies, all through one device in a fashionable case.
God if only more games were released for the Apple, I'd be all over it
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Of course they make REVENUE. Revenue is all the income produced (at least $3 from me!), while PROFIT is revenue after income. It looks like the reporter never took economics 101... I expected more from The Register
The sad thing is this is what it took to bring the recording industry kicking and screaming into the modern arena of digital music distribution. Apple can't make any profit for something with a lowered distribution cost relative to comparably priced physical media, and are forced to do so indirectly via a locked-in hardware device. I reckon if they could make a profit on the music, the price of the iPod would go down, it would support other services, and iTunes would support other players. If that isn't a pathetic indicator of the greediness and short-sightedness of the recording industry, I don't know what is. I kind of wish Apple hadn't invented iTMS, just so I could have watched the music industry die an ignoble death.
---If you can't trust a nerd, who can you trust?
This says a lot about how right a grip the RIAA has on the business. If the RIAA wasn't holding Apple ransom for 70-odd cents per track, they would be making money hand-over-fist.
are you kidding? the latest version of Final Cut Pro 4 costs $1000. you're telling me they lose money on that? i doubt it. just because they might lose money on their OS doesn't mean they don't make money on their other software.
What was said is that the competitive landscape is very challenging, and by being the largest store and having all this infrastructure up, might end up gaining a small profit in a few years. Right now it's time for investing, but sometimes it might pay off. And the punchline was that Apple might end up gaining a small profit while the competitors, lacking many part of the infrastructure, will not even gaining some profit in any foreseeable future.
There you have it. Completely different context. You can hear Jobs' words by yourself, the audio of the analyst meeting is online (it's the Q&A part, all in glorious quicktime).
The register article doesn't take the fact that indies are in iTunes into the equation. That's hardly sucking up to the RIAA.
Listen to Reality!
I recall this happening in the past where a new, up and coming website would pay money for an association with established company. As time went on, the website became not the dependant but the dependee, and could reverse the flow of cash from out to in.
Also, consider Walmart. Initially they didn't have much bargaining power with the vendors because they made a small percentage of their sales. But now, there are many commodities of which ~80% are sold through walmart (toothpaste, etc) and now Walmart, as Apple may soon be able to, can dictate to the suppliers more agreeable terms.
Since the negotiations with each record label were made seperatly, ITunes can pressure them by, say, not putting an uncooperative label's offerings on the main screen and not promoting their new stuff.
And im sure it will be just as successfull.
I mean what the hell are they thinking. Sell your services, drive your services with pretty hadware NOT the other way around. Its this kind of thinking that has kept their market share and profit margins so low for so long.
Cheap hardware, brings the customers in, services/software keep them paying (ala video game consoles and Microsoft).
Their ass backwards thinking makes Apple products an attractive unafforadble gem. SELL!
>The Register has an article about the lack of profit from iTunes.
Not 'iTunes'.... ITunes is free. Of course there is no profit.
The profit, or lack thereof, is in relation to the iTunes Music Store.
The Seattle Times article suggests that Microsoft cannot create their own iTunes like music download service because that would be an antitrust violation. Is this what's keeping MS out of this area?
Apple can't make money because they don't know how to cut costs. Napster, Dell, etc. will make money at less than .99 per song and knock apple out of the market.
first you dont but the OS every year. second windows is $250 a copy. so it costs twice as much yet they sell 25 times as many copies, so it should cost 25 x less. third, apple sells 5 copies fo 200 bucks.
how many copies of final cut pro do you think they sell compared to programmer salaries to write it. They would surely like to sell it for less if that owuld increase the market. Thay certainly dont sell millions of units like they do on hardware.
How many years did amazon go before they made a profit? Just because Itunes is not making Apple a profit, it does not mean itunes will not make them money from other products (such as Ipod sales).
TruePunk | Games
The fact that Apple isnt making much money at this time isn't a problem at all, they are the first of many that will be popping up all over the place, eventually you will have indie record labels doing the same, with equal quality music selling for less becuase they own the copyright. Once you start seeing places undercutting each other on the prices you will see the major record labels realising that there will be no more monopoly. Just think if a person decided to make a generic server/client software that was similar to iTunes (with its own DRM model) and distributed the software itself to the "mom+pop" crowd, you'll see the whole industry explode; in my opinion this could eventually paralell the "shopping cart" you can easily add to any website. Once this happens the cat is out of the bag so to say. And no longer is the money funneling towards a single place. And the artists just might get a cut when this happens.
....move along....nothing to see here....
Clearly even 10c profit per download is good business, and Jobs probably does not want the market filled with dozens of competitors. This is his way of trying to avoid a dot-music bubble. Won't work though, because the iTunes figures are just so much better than anyone expected.
Ceci n'est pas une signature
Mod this up, it is THE most important point.
Or just aren't familiar with Mac API's? What if you're a Linux or Windows developer tyring to write a Mac port?
No guarantee that this is accurate.
Source
About an hour ago I compared 27 songs that I had queued up in my iTunes "shopping cart" against the RIAA Radar search engine. Every single song was from an album produced by an RIAA member. So I dumped my queue and iTunes lost a $26.73 sale. That is my protest against the RIAA's campaign to save themselves and other buggy whip industries.
Only on
Wasn't it bloody obvious?
Regardless of what your opinon o the two operating systesms is, you cannot seriously argue that apple spends more money on research than microsoft does. Take a look at the projects currently being developed by the folks at microsoft research. They are spending tons more than apple. Now money spent does not garuantee superiority.
Well.. maybe. Or Maybe not. But Definitely not sort of.
how much profit margin for the ipod ?
.00 ????
Anyone want to take a guess ?
$ 50
Listen to what Jobs said - at $0.99 per song, you can only breakeven at this business. He is talking to analysts, analysts who are also gonna talkto DELL, Wal-Mart, MTV, Napster, et al. Jobs didn't say it's a loss leader, he just said it isn't very profitable and basically breaks even.
... iPod. They do all work with a myriad of competitors and they themselves all compete with a comodity product - the WMA music file.
(Now, add volume on the order of magnitude of 80% of all music sales, not just on-line...and you have a position of strength to negotiate all your direct costs, an economies of scale for your indirect ones - but that's another econ lesson)
So he is casting FUD onto the longevity of those competitors. What is also important to note is that NONE of those services work with the worlds #1
Now listen up - this is important - the WMA music file is a comodity because if it costs $0.99 from Wal-mart or MTV or Napster or DELL, then why should I buy it from any of them? They will either have to add value to it by making the shopping experience easier, or lower the price. Assuming it can't get easier than 1-click shopping (Apple and Amazon exclusives) or rich browsing/searching content of which most services have, then that leaves price.
Which brings us full circle - if WMA music files are comodity items that can only compete on price, and if at $0.99/song, a music store isn't significantly profitable, than prices will drop until the competition goes out of business.
That is what Jobs said.
I only came here to do two things; kick some ass, and drink some beer...looks like we're almost out of beer.
BS
Walmart just this week admitted they sell CD's at a loss in order to bring customers into the stores. Big deal that anyone else should find a similar tactic attractive.
Also BS that an iPod is too expensive. Where else can you buy both a portable firewire HD and a portable music player for the same price...pity the poor fool that saves a nickel and spends a dime.
you can turn that meme into a molecule and introduce it into the water supply on this planet?
It would save us all a lot of time.
+&x
It makes you wonder how the Napster "free" model to Penn State is sustainable *OR* just how much Penn State is paying.
From the university point of view, this was all done to avoid the rath of Congress, who was being poked into action by the lobbyists from the RIAA as the result of all the illegal copyright-violating P2P downloading done by the students.
I wonder if it was worth it?
A large reason they haven't been making money is because they needed to develop the Windows version of iTunes. They've done that now, so those development costs will go down. Sure there will be new versions, but initial costs are always higher.
Didn't everybody expect that Apple was using iTunes to drive its hardware sales, just like it uses every other piece of its software to drive hardware sales? Where's the news here? That's like saying Bill Gates didn't make a billion dollars this year. Oh well, he still only has $50 billion.
I'm sure the Apple marketing guys lost sleep when they considered the 'cheap bastard' demographic.
You must really throw a fit when you buy gasoline these days.
Yep, gasoline is still waaaaaaaay too cheap.
:) ....thought so.
It seems interesting to me that Apple is so forthright in talking about the "razor-thin" margins involved in their iTMS venture... sounds like they're trying to convince someone about their intentions... they keep saying they just want to sell ipods and macs.
Its exactly what I would be saying to a paranoid recording industry at this time.
"Its ok, we just want to sell out little mp3 players, we're not trying to take your market away from you."
I guarantee that while the iTMS keeps growing and becoming the dominant online music service that Apple will keep insisting that it is not in the business of music to keep an already paranoid recording industry calm. When the sales on iTMS become significant thats when the playing field will alter... apple will be able to negotiate better deals and the record companies won't be able to threaten their supply. Also consider an apple subsidury being able to approach bands and say "here's how many CDs you sold last year and here's how many mp3s you sold on iTMS... now who's you're daddy."
Since AAC is an open standard why don't any of these stores develop their own DRM scheme (or use Apples if it isn't proprietary, but I assume it is) and offer both formats, or even just AAC if Microsoft doesn't like that idea?
Fact is, I never did do Napster, and never have downloaded music except for an occasional song off of a legitimate band web site. I didn't because I wasn't willing to take stuff and not pay for it unless the artist wanted to give it to me. So, until iTunes became available, I missed the digital music revolution almost entirely....
And I LOVE IT. I love being able to buy and download exactly the songs I want -- particularly specific rock or pop or country songs I love by groups whose other stuff I don't much care for.
I want iTunes to succeed. It's opened a new world to me. And if it doesn't make money, I wonder if it will stay around. <sigh>
Catherine
Apple should soon start receiving payola from labels/artists who can afford to pay for placement and higher visibility.
Payola, though traditionally frowned upon by the courts seem to thrive in other markets such as search engines (pay for placement).
You have to believe that there are some execs at Sirius who are loving life right now. (you mean I get bribes just to play music I probrobly would have to some extent anyway?!?)
Traditionally, Labels were the only ones to fork over payola in the form of money/whores/drugs to radio station managers for spots in the rotation regardless of talent or marketability.
But would a homosexual have anal sex with a girl and pretend it's a guy? An anus is an anus, after all (and a mouth's a mouth). While I enjoy oral and anal sex with girls, I have no interest in partnering with a turd burglar even if the lights are out. So it stands to reason that the BSD babe has nothing to fear from that fudge packer.
they must have open sourced it then
It's all about integration, efficiency, ease of use and aesthetics, and nobody does those better than Apple. Also hot monkey sex. It was not then and isn't now about the short-term revenue.
Licensing fees are a fact of life in digital content, and the DRM armor is only going to get shinier. Music is just the first wave - every other form of content, even applications, are moving toward authentication, run-time models, toward licensing and away from first sale. That's just where the money is in a world of perfect copies.
Of course online music is a loss leader. No one has more to gain from that loss leader than Apple - they sell the whole widget, which nobody else does.
They're well, well positioned to sell an assload of Macs and plenty of their integrated apps and services through the ubiquity of the iPod and the universal availability of iTunes.
As for Orlowski's bongwater musings? These really made me laugh:
Nice language, I know I've felt free to rip and pirate copyrighted works my entire life. Even in the womb, all I remember was eight-tracks being shiftily handed about by my parents. That and mimeographs running off the latest bestsellers. And Betamax copying all over the damn place. Keep in mind that Apple has the most liberal terms around.
Unworthy? The fact that everyone wants a college football championship don't mean it's gonna happen in our lifetimes. Same with the record labels.
Earth to Orlowski, come in.
A government-sponsored tax granting free music rights to everyone? That's not a technoutopian fantasy? Where's this global consensus forming, in a ratty pub in the Midlands?
Right. Only if the revolution comes. I'm not betting on that.
Let's think about this for a moment and puzzle out why Apple might be willing to have iTunes Music Service be a loss leader right now.
Now, most folks thinks this is so that they can sell iPods. And while I think this is probably part of the reason, I think there are other reasons.
In fact, it could be argued that the zero margins on iTunes Music Service and the margins on iPods are part of a long-term investment in an even bigger business.
And what might that long-term investment be?
Think about this: currently the RIAA are the gatekeepers to the great libraries of music. They have the talent and content that matters under their control If you are going to get to the music which drives traffic and deals, you have to cut the RIAA in for a piece of the action.
But the RIAA is caught in the fantasy of maintaining a business model which is broken and won't settle for a piece of the action which is less than what they are getting now.
So, you have to make a deal with the devil. You have to give the RIAA a deal which is economically unsatistactory in order to get any deal whatsoever.
Of course, if you have another source of revenue with decent margins, this isn't really all that bad for you. You can give away the blades in order to sell the razors and to establish yourself as the defacto standard. Sound familiar? And you are able to do this without losing money in the process.
Of course, the next time Metallica's or Sting's or Byonce's contracts are up for renewal if they have a savvy business manager, they are going to look at their sales distribution and maybe notice the fact that they are paying a lot to the RIAA to essentially collect a check from Apple, cash it, and then write a check to the artist in question.
How long do you think it will be until some major name breaks ranks and decides to negotiate a contract that cuts the RIAA out of this portion of the distribution scheme and then cut a deal between themselves and Apple?
Once a single name does it, they dam will be broken and the flood will start. Apple will be able to increase the major it gets on each iTune sales and the artists will be able to increase their cut of each song. It will be a win-win proposition for the Artists and Apple, and the RIAA will quickly be relegated the position of being the CD distribution business.
In this play, Apple, the Artists, and the Consumers win, and the RIAA and Microsoft lose. Makes you understand why Microsoft has been attacking iTunes for Windows and the iPod so strongly...
Yours,
Jordan Dea-Mattson
The fact that the ipod is driving the profit for apple is not surprising if you consider the history of other mediums such as radio or television. Early radio, dominated by RCA, gained its main profits not by things such as advertising, but rather by the sales of radio sets. This was the same with early television.
Gradually, as the new mediums evolved, they developed various ways to generate revenue, such as advertising and syndication. Likewise, itunes, which have already proved itself successful, will find ways to adapt to the demands and nuances of the newest medium, internet.
- Renegotiate with the record labels.
- Start signing artists themselves.
- Start taking on smaller labels
Why? Because the big labels are still big. They can do without iTMS sales for a looooong time. Maybe sell to others, maybe even organize their own sales outlets. On the other hand, taking on all aspects of the label business is really a far leap, and requires a skillset quite far from the technologically oriented Apple.The smaller labels would do the "dirtywork" - finding some musicians which are good at what they do, have a good style and in general have a good produkt that needs marketing. Apple knows that a spot on the iTMS (in particular if it gets so big as they want) is far better promotion, and would get them far better sales than they'd get as a local inde band.
All they have to do is offer them enough so that iTMS volume*margin=profit is higher than non-iTMS profit. And since the volume (sales) would be much higher, they can get away with giving the label a slim margin. The rest is profit for Apple. For a RIAA-band with the media blitz, sales with and without iTMS is pretty much identical, which means there is no way to push margins compared to CD sales.
Kjella
Live today, because you never know what tomorrow brings
1) It is unheard of to give equal shelfspace to all and any label or artist. You have no idea how much that is going to hurt. Are you really bobbing Jobs on the head for treating more than 200 "indies" just like the "biiiig five"? ... you think the RIAA can justify big margins on digital sales forever?
2) You have not calculated the costs and winnings when Apple is to set its target next year (100 milion songs distributed). Never mind Pepsi.
3) You fail to mention the margin artists get from CD sales. I can already hear the roaring sound of re-negotiations
I'm part of a very small label (stupidly called "independent" as if the big ones aren't). We will start selling on any and all digital music stores we can get into. Some only offer 50% from sales (because being smaller makes logistics a bigger cost). You can't get a better deal than iTunes.
Here's the cincher: what do you think we have to do to get worldwide digital distribution rights from the artists? Right: talk, explain, ne-go-sh-i-ate.
I'm not saying Jobs is a saint, but you totally, blatantly fail to see the big picture if you think the iTMS is saving the big five and keeps them firmly in the saddle as is. I'm not saying "indies will win against the dark empire", I'm saying there's a new distribution model that is changing the rules and nobody knows where we'll be in five years. Your article is about the most one-sided thing i've read on the topic.
As for your 1c per CD proposal. It's naive to think this can work as is and replace the current model. There needs to be a sort of competitive model. Artists don't live in some marxist fairy land, they live in this cruel, brutal world. You want them to lead the revolution for you?
Now, if you'd say, fuck it, let's do the 1c anyway, regardless, whatever... Then you're talking. It would guarantee a flat income for starting and struggling artists - and would generate a lot of crap music, but that's ok. As a concept it's sound and I don't see how an iTMS or any other store should or would change anything about it. Go for it, tax those media carriers. To be fair you should probably give 0,5c to software authors, but that's ok too.
But this system doesn't make a difference between "good" and "bad" (read popular and unpopular) and as such can't be used to replace sales income. You might think that doesn't matter, and philosophically I'd agree, but if you think musicians will agree, just because they're making music which everybody knows should be free and is elevated and out of here, you haven't played in a band and actually don't know any musicians. They are people for christ sakes.
I want you to imagine taking all the competition out of your profession. In some ways that would be great. But it also means you get paid just as much as that moron there who types l-i-k-e t-h-a-t and doesn't know shit. And if you want to earn more than what's your due (whatever that is) you can always perform, right? Yeah baby yeah.
BTW: our label is largely run by artists. we may be terminally stupid in this, but we're not uninvolved.
And we all vote for as many music taxes as possible on non musical folks. That'll teach em for not having rhythm.
I think, therefore I am...I think.
That way you can bundle in songs with an order to save on visa charges..
i'd hat to be pay 35 cents a song for processing fees if someone just bought one song at a time.
On the other hand, how could apple NOT be making money when in alot of cases it is still cheaper to go to best buy and BUY the cd instead of all of the tracks? Obvoiusly the packaging, distribution, warehousing, sales and staff to support a retailer is a tad more then the overhead of network/infrastructure to do it electronically. (as retailes have a similar network/system to manage sales anyhow)
hhmmm.. can't imagine that anyone could sell music as a loss leader when the industry is gearing up to sue (or currently is sueing) hundreds of users!
Oh man... where are my mod points when I need 'em... I laughed out loud :-)
with itunes being the market leader, what does this mean to other companies that are hoping to compete...
and what does it mean for the future of legal music... hekc... not that i care... since i really think music is way overrated in its importance... and there are more worthwhile things to debate over in life...
then they would have:
a) negotiated better deal to increase their margins on each song sold
b) songs priced $1.49 instead of $.99
c) do what ever they can to increase the volume of song sales(i.e. different formats, working with all kind of MP3 hardware, etc).
Numbers like installed base for MP3 hardware, rate at which MP3 hardware is selling(for projection), etc. helps determine if they are going to make any money or not.
But Apple has a different goal: if iTMS is breaking even -- then that's good as the whole infrastructure for iPods is self-sustaining. In other words, in order to attract people to buy iPods they use iTMS which costs Apple nothing.
What I found interesting was the mandatory license fee - you pay so much per cd\device\etc. (such as Canada's tax on CD-Rs and teh US one on Music CD-Rs), but can d\l music for free. Artists then get paid based on popularity; much like the current model for on-air royalties.
.0001 cent (or whatever) credit:
The real catch is - who control's the distrobution and defines who is eligible to share in the cash? After all, unlike radio stations, anyone with a computer can d\l a song and give the artist their
1. Post my latest song
2. Slashdot server
3. Profit
This is one area where copoeration benfits the group - but busts the model. Imagine a few thousand "artists" releasing song's and d\l them - the money's not in the music, but in the traffic you can generate. The noise would quickly drown out the signal.
Of course, you could require that a CD be available, but with today's tech that isn't much of a hurdle either.
On air play? A bigger hurdle, until some 50w AM station realizes there's money in a hugh playlist and splitting royalties - sorta like a music co-op - with a little work, you could stream mp3s on-air all day long with no staff beyond that what's needed to maintain equipment and cash checks... Of course, than an audience size issue would get added...
Which leaves it up to the big labels or RIAA to do the vetting, which smells a lot like anti-competitive collusion.
I'm a consultant - I convert gibberish into cash-flow.
OK, so the current model of the iTunes Music Store makes no profit, and Steve claims its a method to drive iPod sales. But, you have to also keep in mind he is a secretive, paranoid billionaire, who guards Apple's product developments like they were the secrets of the universe or something. Once ITMS is an established retailer of music selling hundreds of millions of songs a year, feasibly he could start signing artists independantly when their contracts with current labels are satisified with something like iTunes Producer, thus cutting out the middle man and probably giving the artists themselves a much larger cut, as well as promoting independant music. And don't think Steve isn't also laying the groundwork for some kind of iTunes/iMovie Video Store. Wait until bandwidth is a little cheaper, and every Mac has a DVD burner on it, and see how fast you can download and burn yourself a copy of Ghostbusters for 5 bucks. Granted, certain format/security issues would need to be tackled to spawn some kind of copy protection similar to what they have with the AAC format, but I'm sure there's a white room in Cupertino where they're working on just that.
You can burn your Itunes to disk,
and if you want, just rip those disks to
another system...
I can play my music on the '7 song MP3 players' Jobs was making fun of... by the way its more like 100 songs on 256MB of ram... And the newer MP3 players can hold up to 1 GB of RAM
The nice thing about iTunes is that you are not locked into anything, the songs are super quality, and for 99 cents you have decades worth of music to pick from...
i(diot)Pods, on the other hand, are overpriced and overhyped...
Want iTunes to be successful? Help them make more money, by doing the following:
* When you make a purchase, don't make one. Bundle your purchases together. Apple makes far more money if you buy 10 songs in 1 purchase than if you buy 1 song 10 different times. This is because there are transaction costs -- fees to Visa, etc. One way around this is to buy yourself a gift certificate -- this way, your credit card is only charged once, not every single time you decide to get another song.
* Share the love. Buy gift certificates for others.
* Share the software. Get other people hooked on using their media software.
I knew Apple would try to make money off of their iPods and not the downloads, but I'm still not happy that Apple isn't making something on the downloads. Perhaps their buisness model will shift a bit, and try to land smaller bands with more favorable terms... the extra profit margin might induce Apple to "push" those bands, who would then make more money too. But I digress.
Support a few technologists in Washington.
" but I'm pretty it isn't them directly. "
Then you don't work for a large company. I work for a large transportation company, and we have direct links to AMEX, Visa & MC. We authorize directly in real time on each purchase.
I'm absolutely certain Apple is doing the same.
And while the fees are negotiable, just $13M isn't going to make those guys blink; we do $2B US annually with these guys, and we have a little bit of negotiating power, but not much.
You need many Billions in transactions before you can budge them.
"Nobody forced the artists to sign the contracts that send all the money to the middlemen."
For all practical purposes they do.
Its like saying "no one is forcing you to breathe the air outside; you could live your life using an aqualung and get away from the air monopoly".
No one is forcing you to use windows. No, but nobody has a lot of choice, either.
You talk like you've actually started your own music label. And all you've done is listen to a few pieces of diposable pop music on your cheesy boom box. All of the sudden, a 21 year old is the expert on the music business.
Cripes, I hope you get smarter before you breed.
Apple will give up on the loss leader iTunes and it will be called FedoraTunes. This will free up apple to figure out how to charge more for there walkmans...errrr..ipods.
(+1 Funny) only if I laugh out loud.
Mind you, it is a different model but if you're into Jazz or Classical it's far superior. Based on subscription price it can work out to ~
Mind you, it is a different model but if you're into Jazz or Classical it's far superior. Based on subscription price it can work out to ~ > $0.50 per track. I disagree with their new model where there is a cap on downloads the number of which is based off of which subscription you choose but there is still more bang for the buck depending on the genre of music one prefers.
2) ???
3) Don't Profit!!!
I know, they profit from the iPods and other Apple hardware/software, still, it's funny since they're outselling other online services.
P
free ipod and free gmail!
most people in this thread are saying that the music from iTunes is cheap when normally we hear how its so much for DRM'ed files?