iTunes – The Math

While I am an avid reader of the Wall Street Journal, I rarely read the Money & Investing Section. I just don’t have alot of interest in the technical side of the captial market. Disguised in an analysis of Apple’s stock price, there was an article from 10/9/03 [sub. needed] that discussed the financial model for iTunes. Since I have seen only one other analysis, I thought this would be worth sharing:

$0.99 Retail Price for a Song

-$0.65 Licensing Fees Paid to Record Companies

-$0.25 + 2%-3% Credit Card Fees

~$0.10 Profit

The 10 million downloaded songs creates about $10 million in revenue and $1 million in profit. With the addition of Windows users to iTunes, some estimate the potential revenue at $600 million and added profit of $50 to $60 million.

The point of the WSJ article was that iTunes will not be a huge moneymaker for Apple. The article does go on to tell how iTunes may drive sales for iPods. In their fiscal 3rd quarter, Apple sold 304,000 units vs. 54,000 units last year. Analysts estimate that 2/3 of new users are Windows PC users.

The questions for the future are:
1. Will experiencing Apple products convert more Windows users? [yes]
2. Will Dell dominate this market with their recently announced music player and download service? [no]

3 thoughts on “iTunes – The Math

  1. I agree with you on the WSJ, I never read the Money section. I think that has been Apple’s goal all along – to convert more Windows users through familiarity with Apple products. A PC is such an expensive purchase that no one want to try Apple that way. An iPod and Apple’s music service are a way to become familiar with the company with less of a financial commitment.

  2. Reading this certainly got me thinking, and I realised aggregate billing would save Apple tonnes (see: .

    Just found APF, and will continue reading the archives. Fantastic blog.

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