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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.
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
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.
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What about the RIAA labels? Have they been making any profit?
More importantly: How much have the artists made?
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.
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I don't mean to sound rude, but wasn't this the business model all along.
Yes, it's a variant on Netscape's business model. Their idea was, we will make money selling servers, but no-one will want servers unless there are lots of people with browsers, so we'll give browsers away for free. I believe the original analogy was "we sell printing presses but first we have to teach people to read to create demand for books" - Jim Clark or Barksdale, can't remember which.
Apple just wants to get everyone accustomed to thinking of music as a file not a plastic disc. Once they do that, everyone will want a player - and judging by the price of iPods, Apple must be making an absolute killing on them. I can't believe they cost most than a few tens of dollars each at most, even including amortizing development costs at a reasonable rate. Apple didn't just study Netscape - they studied Nike too.
Generally credit card companies charge a flat percentage, but that could be per contract also...
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Did you even live through the dot-com bubble? Do you remember when sites like Yahoo!, Excite!, and the other titans of ad-based revenues (or lack thereov) were huge for a while and had hundreds of other companies trying to do the exact same thing fully well knowing that revenues would be slim to none? And after a few years the only services left were the ones that made a real name for themselves, brokered real, money-making partnerships, or that sold their soul to the devil?
That's exactly what I see going on here: We've got iTunes, MusicMatch, Napster, Wal-Mart, MTV, and the others on the horizon that are all going to enter into a market that their accountants probably would advise against but they still do it to try to get a foothold in a new and emerging market. Expect many of them to die off unless they get a viable business model to back up their technical requirements. Apple's got the iPod, Napster has their $9.99 subscription service, and the others have....
It'll be interesting to see the Internet music bubble burst in a year or two. In the meantime I'll keep buying music from iTunes.
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.
Quicktime for Windows didn't make me want to switch to a Mac, and iTunes for Windows won't either.
(Mac OS X might though)
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.
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...
Yet it (OBVIOUSLY) contains a lot more research and effort so their costs are much higher and profits not much on software. No it doesn't. Thats the sad thing. MS clobbers EVERYONE on R&D spending, which implies that they put a lot more research and effort into their products. The sad thing is they still get them wrong.
Before you flame, I'm not contending that MS makes a better OS, I'm contending that their product contains more research and effor.
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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.
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why would you pay twice as much for a crappy iPod and not pick up one of their competitors' products for much less
you don't have an ipod do you? i shopped around for mp3 players for a long time, and nothing even compares to the ipod. especially hen coupled with itunes. it is the most thought out and ergonomically well designed player. period. it is worth the extra dollars. if it wasn't, then it wouldn't be the best selling mp3 player. it is also the most expensive, so apple must have done something right. as for supportig other formats, there is no need. it supports MP3 and ACC. I can take all my mp3's, burned under grip on my linux desktop, ftp them into my music folder, and itunes will look at the folder, automagically get the mp3 names and albums, etc., and copy them into a new folder under the artist name. i am not one to buy songs. i prefer albums. and if i did buy a song, i would prefer it come in drm friendly formats.
iPods only work with iTunes for a reason.
of course. they want the whole thing to just work. and btw, i am not some mac bigot. i have used linux exclusively for over 5 years, even in my classroom. i only bought an ibook last year because every pc notebook just plain sucks(excpet maybe a stinkpad. dell's are shit nowadays). and since i had unix underneath, it was an easy transition. though i still have linux on my desktop.
My problem? I was perfectly gruntled, until some numbnuts came by and dissed me.
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.
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.
"I am surprised that no one yet has pointed out the ramifications of Jobs' revelation: a loss leader is an anti-competitive practice --it's actually illegal in a few countries, although nowhere in the US AFAIK."
It's already been pointed out that it's not a loss leader, but I should also point out that we don't know what Apple's startup costs have been compared to other online services. Their ad spend certainly seems to be dwarfing that of Napster, so that alone may make it harder for Apple to be profitable. "If Apple can't make a profit, nobody can" may not be a fair statement.
But, the mention of loss-leaders being anti-competitive brings up a related detail:
- A few years ago Best Buy, Walmart and others started selling CDs at a loss (or, at least, at sub-standard margins) in order to bring people into the store.
- Lots of little retailers complained to the record companies, saying "Hey... Best Buy and Walmart are being anti-competitive! We can't afford to sell CDs that low!"
- The record companies started setting MAPs (minimum advertised prices) for their new releases to help level the field for the little guys. This meant that the retailers could sell the CDs for $11.99, but not advertise them, which, the theory holds, pulls fewer people into the store.
- As a result, the record companies got nailed for price fixing.
It sucks to be in business.Sitting in my day care, the art is decopainted.
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!
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?
Besides, not that Apple will "sign" artists. But artists might be able to make their work available (either non-exclusively, or exclusively for a short time, as is already happening) through ITMS.
well, if you are not a dumbass, you will know that Quicktime API is for Multimedia in your apps, Carbon is for LEGACY code and porting Classic apps to OS X is a breeze because of it, and Cocoa is for Aqua apps, IE NEW apps.
Thank you, I'm not. Although QuickTime is indeed primarily a digital video standard, it also includes a complete Mac OS-like operating system API in it. Indeed Carbon was originally based on the QuickTime for Windows code base - we ported QTW to Rhapsody and voila, there were the Mac OS classic APIs.
Apple may have intended Carbon to be used for legacy applications, but plenty of new apps are using it. For programmers familiar with classic Mac OS programming, its a much easier leap to Carbon than Classic, so a lot of them develop code using it.
Sailing over the event horizon
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
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
gwernol knows what he's talking about. Quicktime does indeed have a relatively self-contained (and ancient) mac os-like services layer that has been ported to windows as well, and I believe iTunes for windows uses those APIs (which is why it's so bloated). Most developers arriving or porting from other platforms (or indeed, from OS 9) are far more familiar with C++ than with Objective-C (which, while quite a useful language, certainly has its own share of performance problems - dynamic binding and typing don't come cheap, and function call costs are relatively high, for instance), and tend to use Carbon, even though it was originally intended as a compatibility layer. However, if you stick to one programming model (Cocoa and ObjC, for instance) programming for OS X is much easier than doing say MFC for windows.