updated 10:05 pm EDT, Mon June 13, 2011
Apple says store runs "slightly above" break even
Asymco's Horace Dediu has looked into the latest statistics on the iTunes Store gleaned from stats revealed during the WWDC keynote -- as well as recent statements from Apple's quarterly phone conference with analysts -- and concluded that if the store is being run at break-even levels, the costs associated with it may be as high as $1.3 billion annually.
Some have taken Dediu's assumption that the store is run at break-even levels as being flawed: Apple officials including CFO Peter Oppenheimer and COO Tim Cook have always characterized the store as running "slightly above" break-even levels over recent years, implying that the store does make a modest profit -- though what constitutes a "modest" profit on an operation that posts revenue of $313 million per month (and growing) hasn't been clearly defined by the company.
Dediu looked at the average price of songs and apps, the known 70/30 split between developers or music labels and Apple and other "known constants" of Apple iTunes business, along with impressive statistics from the keynote (such as 15 billion iTunes song downloads, 14 billion app downloads and so on) and produced a chart showing his estimate of iTunes' margins. Using his assumption that the store runs at roughly break even, the date implies that the iTunes empire costs the company over $1.3 billion per year, but makes some $3.76 billion in revenue. Most of the difference between the two figures, Deidu says, is the royalties Apple pays to app developers or music labels, movie and TV content producers, artists and other rights holders.
Dediu's estimate presumes that most of the $1.3 billion in costs comes from hosting and serving the content, along with payment processing. Another undetermined portion goes into support and "curation" of the offerings, and assumes a portion is amortized costs relating to capacity increases. He speculates that a significant portion of the investments that went into the recent data centers in California and North Carolina came from iTunes operating margins. [via Asymco]