Billboard Does The Math On iTunes

Mar 13th, 2008 // 6 Comments

thenewfeistymodel.jpgIt isn’t necessarily because the music industry is imperiled all over that the question of whether the iTunes Music Store is operating at a profit finds interest among industry folks. According to Billboard‘s Ed Christman, who did plenty of math and showed his work in his piece, the store is indeed making money, though precisely how much remains in question.

The Cupertino, Calif.-based company announced it had sold its 2 billionth download Jan. 6, 2007; its 3 billionth July 31, 2007; and its 4th billion Feb. 27. As such, Billboard estimates that the store sold 1.7 billion downloads last year, and that of that amount, 940 million tracks were sold in the United States and 732 million were sold abroad, as the company operates stores in 21 other countries.
If all 1.7 billion downloads were counted at the U.S. price of 99 cents, they would equal $1.7 billion in revenue last year. But when it repatriates sales revenue from other countries, it likely enjoys a bump thanks to exchange rates. For example, in the United Kingdom, iTunes charges 79 pence per track download, but that equals $1.56, according to Web site oanda.com.
So when revenue is brought back to the States, Billboard estimates iTunes’ music download revenue at $1.9 billion last year, which is in line with the $2.7 billion in revenue it reported during calendar year 2007 for other music-related products and services. Those consist of iTunes Store sales, iPod services and Apple-branded and third-party iPod accessories.

The piece’s coda notes that administrative costs and heavy advertising take their chunk. Nevertheless, I actually managed to read the whole thing without wondering where I was, which when it comes to me and hard math is an accomplishment.

Dollars & Cents: iTunes Store [Billboard]

  1. Al Shipley

    Although this is all way out of my league of comprehension on an economic level, it kind of amazes me that it’s up for debate whether even a music distributor with zero manafacturing or shipping costs can make a profit. I’d've assumed the iTunes store is like a license to print money.

  2. SneakingThroughTheAlleyWithLalley

    I’d tap Feist

  3. SuperUnison

    Does anyone know what kind of royalty itunes yields?

  4. Chris Molanphy

    @SuperUnison: You mean, out of the 70¢ per download that goes to the label? I’d say it probably depends per each act’s contract with that label.

  5. revmatty

    Distribution costs are not zero. Bandwidth is not free (and given the volume of browsing I do relative to every purchase I make I’m going to guess they spend a lot on bandwidth). Hosting is not free (hardware, power, cooling, administrators, etc). Certainly distribution costs are wildly lower than for physical media, but they are not zero.

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