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Piper: iTunes Match fees likely going to royalties, support

updated 12:15 pm EST, Thu December 8, 2011

Service likely meant only to generate hardware sal

The $25 annual fee for iTunes Match is likely only putting Apple just above even on the service, says Piper Jaffray's Gene Munster in new memo. The analyst points to the iTunes Store, which generates a small fraction of Apple's annual revenue. The iTunes Match fee is instead to believed to be covering royalty fees to labels, as well as basic storage and infrastructure costs.

Munster estimates that there are roughly 135 million iTunes users in the US, the only place iTunes Match is currently available. If 1 percent of that audience subscribed, it would only generate $33.8 million in revenue annually. Raising the ratio to 5 percent would bring in $169 million.

The ultimate purpose of iTunes Match is believed to be identical to the iTunes Store, which is fostering hardware sales. Along those lines Munster comments that Match doesn't appear to be discouraging buying high-capacity models of the iPhone 4S. In a survey of launch buyers, 19 percent were opting for 64GB, while 32 percent picked 32GB. "While we expect these numbers to come down from our survey of early adopters, the fact that 50% of buyers opted to pay up for more storage suggests that the advent of cloud-based access to content is not hampering sales of higher margin, higher capacity devices," Munster writes. "And while this mix may change, we still see benefits of higher capacity devices given the speed and convenience of local content, and limited access to the internet for some users (air travelers, for example)."

The gap in Apple's cloud strategy is said to be video. Recorded videos can't be uploaded to iCloud, nor is it possible to re-download content bought from iTunes, even if it is possible to stream TV shows. Munster suggests that this may change in late 2012, when he anticipates Apple's TV set launching. He speculates that Apple could offer bundles for live channels, possibly in the form of apps, along with on-demand content. "The details of a subscription video service are very unclear, but we believe it would leverage Apple's iCloud infrastructure for web-based delivery of content to the television, or other iOS devices," he says. "And it would also likely start out small (perhaps offering just Disney/ABC content) while other content providers weigh the pros and cons of an Apple video service."




by MacNN Staff

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  1. facebook_Samuel

    Via Facebook

    Joined: Dec 2011

    +3

    Dare I say...

    well, DUH! Can I be an analyst too?

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