updated 01:51 am EST, Thu February 28, 2013
Music store has gone from iPod supplement to profitable enterprise
Apple's iTunes was originally conceived (and run for a number of years) as a more-or-less "break even" music service that was little more than a value-added feature driving buyers to the high-margin iPod line. Today, the iTunes empire pulls in $13.5 billion annually, of which music sales still play an enormous part -- around $4.4 billion, of which about $3.4 billion goes to music publishers large and small. This would mean that iTunes alone accounts for about 60 percent of the music industry's $5.6 billion in digital music sales.
As noted yesterday, the industry reported that music revenues were up last year, the first increase since 1999. Out of the total $16.5 billion in revenue, $5.6 billion comes from digital, both downloads and subscriptions. Digital music grew nine percent in 2012, and now accounts for a third of total revenue.
The disproportionate portion that iTunes contributes to the downloads suggest that subscription services -- which saw 59 percent growth in the first half of 2012 alone -- are still only a modest portion of digital revenues. The subscription services, such as Spotify, Rdio and Pandora -- are nonetheless popular with record labels, both because they represent stable, predictable income levels and because streaming services are subject to broadcast-like royalty rates, which have been on an ever-upward rise over the past few years. Despite this, artists have been vocal that subscription services haven't worked out well for them compared to digital sales.
According to a study of the figures done by Horace Dediu of Asymco, however, iTunes isn't planning to cede any ground to subscription services. Dediu says that iTunes' music service continues to grow about 10 percent per year -- but nowhere near the rate of growth in the App Store (50 percent per year) and the "Video, Books and other" category (roughly 90 percent per year). The service recently sold its 25 billionth song file.
Though gaining at a slower rate that other aspects of the digital media industry, the music side of the iTunes Store continues to be the single most popular source of digital music for buyers. Rumors suggest that Apple will jump into the subscription model as well sometime this year, with the addition of a premium streaming radio-type service -- though details of how it would work or be different from competitors remains vague.