A more complete picture of the iTunes economy

As it did yesterday, on occasion Apple reports the cumulative total downloads and payments to developers. Since this is done in variable time intervals, it makes analysis of the value of the app store difficult.

But not impossible.

The provision of developer revenues means we can determine the pricing of apps. The pricing of apps and the download totals allows us to determine the revenue of the store. Using the time stamps of the reports allows us to determine these quantities over time.

I’ve combined the data we have so far into the following graph.

Screen Shot 2013-01-09 at 1-9-3.17.11 PM

It shows three quantities (on three separate scales) at a monthly resolution:

  1. Download rate (in millions/day, interpolated from download totals)
  2. Payment rate to developers (reported change in payment to developers/reported time interval)
  3. Resulting revenue per download (in red, trailing average over a 10 month period)

Having a price and quantity of app downloads allows for a complete picture of App Store revenues over time, shown below:

Screen Shot 2013-01-09 at 1-9-3.22.02 PM

Note that I’ve separated the developer revenues from Apple’s own revenues. The blue area should total cumulative developer payments (to a degree of error.)

The green area above is what Apple includes in its financial reports as part of “Music” revenues. If we annualize these App Store revenues we can strip them out and show them separately from “other media” revenues.

Screen Shot 2013-01-09 at 1-9-3.25.04 PM

Concentrating on the green areas which represent what Apple “keeps” we see the following split:

Screen Shot 2013-01-09 at 1-9-3.28.55 PM

Considering that Apple reports the iTunes store to being “slightly above break-even” then we can summarize the chart above as the operating expenses for the store.

Finally, taking into account all the information above we can draw a complete picture of how revenues flow through the App Store:

Screen Shot 2013-01-09 at 1-9-3.34.23 PM


Here are some conclusions:

  • The iTunes economy defined as gross revenues transacted through it is now about $12 billion/yr.
  • Over the last five years content owners (media and app) received a total of $24 billion while Apple spent about $10 billion to create those sales
  • Seen as a retail business, iTunes costs about $3.5 billion/yr to operate. This includes merchandising, payment processing and “shipping & handling”.
  • Total revenues have risen steadily in a range of 32 to 38% compounded over the last 4 years.
  • Apps are now a third of all iTunes revenues, (about $4 billion/yr) having taken that share in only 4.5 years.
  • Non-app media still make up 2/3 of iTunes in terms of sales value but their growth is now 28% vs. about 50% for apps.
  • H

    Really interesting data. Pretty mind-boggling that iTunes costs $3.5b/yr.

    Thanks, Horace!

    • I agree. This is some excellent data, and should prompt a lot of QUESTIONS.

    • jameskatt

      What is more mind boggling is that Samsung spends $12 BILLION a year just on marketing its Android phones to keep pace with Apple’s iPhone and beat other Android phones.

  • rj

    Thanks for the post Horace.

    Has it ever been made clear how Apple’s own apps are accounted for? One would expect them to included in the download numbers, but is it included in the “amount paid to developers” numbers?

    It wouldn’t shock me to discover that Apple’s 5 or so for-pay Apps (Pages, Keynote, iMovie, etc) alone account for a non-negligible percentage of App Store revenue.

    • I suspect they’re not part of that accounting and that the revenue is actually counted against Software line in the Income Statement (as opposed to “Music”).

      • It would be catastrophic for Apple to play games over such an unimportant number. This is the company that lets customers point a phone at a product and walk of of the store with it no questions asked.

        You must give trust to receive it.

    • Guest

      I agree. The idea that they’re hiding something flies in the face of everything we know about Apple’s relationships with developers and customers.

  • Brian


    Great info as always. I personally doubt the store is “just over break even” at this point. I think it all has to do with internal accounting. When they have a commercial that shows off a bunch of apps, internally, you can claim that commercial is promoting the app store or the device being shown. What I think we can all agree upon is that with a revenue TTM of 148.8 billion, the iTunes direct financial contribution is small. Its overall contribution is building the moat around the iOS product line.

    Indirectly, it suggests Amazon’s strategy will not succeed.

    • What? Where are all the ads then? They don’t spend nearly enough for that to be a factor.

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    • Sacto_Joe


    • Good post!

      Let’s see if I can make a post that opens a sub-topic — yet [mostly] satisfies the rules.

      Ages ago, circa 2005, I wrote a desktop/web app to approximate the OS X Mac iTunes app. I was experimenting with ways of managing/accessing a large media collection over the Internet — but that’s another story).

      I wanted the Online App to look just like iTunes looked on the Mac desktop — especially the multi-column table view — where each column was resizeable, sortable and rearrangeable. With a spread of, say 10 variable-length columns over n rows — that could involve quite a bit of data.

      Apple’s iTunes App uses XML to handle all the various data fields for the various types of iTunes content. XML is notoriously verbose as it provides a human readable file as well as machine readable. Typically, 80-90% of an XML file is format tags — as opposed to actual data. For Example, here’s the XML for the movie Casablanca:


      Track ID25569
      ArtistHumphrey Bogart, Ingrid Bergman, Paul Henreid, Claude Rains, Conrad Veidt
      KindMPEG-4 video file
      Total Time6160027
      Date Modified2010-02-16T23:51:56Z
      Date Added2012-04-08T19:30:51Z
      Bit Rate124
      Release Date1943-01-22T22:00:00Z
      Artwork Count1
      Sort ArtistHumphrey Bogart, Ingrid Bergman, Paul Henreid, Claude Rains, Conrad Veidt
      Sort NameCasablanca
      Persistent IDBA15B7885E3FBC96
      Content Ratingmpaa|G|100|
      Track TypeFile
      Has Video
      Video Width640
      Video Height480
      File Type1295275552
      File Folder Count4
      Library Folder Count1

      One of the most time-consuming parts of the implementation was uploading the iTunes Library XML file to the web — and parsing the data so it could be searched — then matched items were used to populate the multi-column table. The multi-column table was then downloaded to the web browser on your machine.

      It quickly became apparent that:

      1) searching using XML was terribly inefficient on the server
      2) downloading/formatting matches using XML was terribly inefficient use of bandwidth and the user’s machine

      Instead i:

      1) uploaded the XML file once
      2) parsed the XML once and populated an SQL database
      3) used SQL to efficiently perform searches and matches
      4) developed a proprietary process of downloading and formatting the multi-column table

      #4 may break one of your rules because I cannot amplify on it.

      I was happy with the results — it performed quite well over a DSL connection.

      As a fluke, I thought to compare it with the iTMS search… Searching for something that had a bit of hits like “Elvis”…

      At first I noticed that the iTMS of that era returned only a fixed set of results (AIR, max 50 rows) — and that it was rather slow… iTMS had the ability to issue a “Show All” extension to your search… and that was really, really slow.

      So what gives here?… How can Apple with all its expertise and resources deliver slower results that a mere web application program on a shared hosting web site?

      I asked an expert friend to help me find out what iTMS was doing that my web app wasn’t — the data streams to/from iTMS are encrypted and beyond my area of expertise.

      Whew! Long story short — Apple was sending compressed (zipped) XML files from its servers to the iTunes app on the user’s desktop — then parsing the XML to populate the multi-column table.

      After some experimenting we determined that on a typical search, the web app could return more matches, faster than the iTMS — and save a minimum of 15% bandwidth (no XML).

      Circumstances (reality) intervened and we both moved on to other interests.


      That brings us to today’s iTMS:

      If you do a search for “Elvis” it returns a display showing 12 songs, 6 albums, and a number of Apps, Movies, Podcasts.

      If you select “all” and “songs” it returns 2000 songs in a very fixed 7-column format: #, Name Artist, Album, Time, Popularity, Price. The columns are not chosen by the user, rearrangeable, resizable or sortable.

      I don’t know if it is still sending encrypted/zipped XML to the desktop.

      I suspect that it isn’t!

      Summary: by subsetting searches, removing flexibility, implementing a fixed format — Apple has improved performance of the iTMS searches.

      They have added small album cover graphics — but I suspect that elimination of XML has reduced the bandwidth significantly.

      IDK what Apple spends per year for bandwidth to support iTMS searches — but according to Horace’s chart, about $2.4 Billion is received for media agency fees. I would guess that a large part of that is used for bandwidth for iTMS searches… Let’s SWAG it at $800 Million.

      Now, if the changes to iTMS (since 2005) have reduced search bandwidth by, say, 20% — that’s an annual savings of $160 million, alone.

      $160 Million could be a contributing factor to the increased profitably of iTMS.

    • Walt French

      I have to say I share many of your appreciations for Asymco.Com, even encouraged others to help keep it so good. But I’ve never dared presume that my rules governed it.

      So, especially, why’d you proclaim this “zero tolerance” blather, which is neither my experience with the site, nor anything more than an empty slogan?

      • My rules? Do you think I am trying to enforce my view of what Asymco should be? You are the one who is presumptuous.

        What I posted are Horace’s rules. Verbatim, a copy-paste. If you’d taken the time to give a damn you’d know that.

        This is supposed to be a scientific process, not a chance for us to spout off. I’ve held my tongue long enough, and I’m tired of seeing Horace do all the lifting for the rest of us.

        This is Horace’s house. We follow his rules or we get out.

      • Oak

        “Maintain zero tolerance for lack of civility. Any disrespectful comments will be deleted”…..”If you’d taken the time to give a damn you’d know…”…..ummm, wat?

      • Oak

        On second thought, let me say that more politely: While you insist we maintain civility and not use this forum to spout off, I must say I honestly find your comment to be among the least civil and most spouty I’ve seen here.

      • Benjamin cited my rules:

        Comment deletion rate is about 1/1000.

  • This is great. Thanks

    There are two questions I’ve been pondering regarding iTunes. First, can it ever be a materially profitable standalone business for Apple. Do costs continue to increase in-line with revenue? Or, are there economies of scale that kick in where incremental net dollars (to Apple) fall to the bottom line (for example, fixed costs of very large data centers)? In five years, when the iTunes top line revenue is 3X as big ($30B+/yr), what does the profit picture look like

    Second, if iTunes cannot be made materially profitable, what does that tell us about Amazon’s strategy? Is it a doomed strategy, or, do they have expertise that allows them to operate their content infrastructure at a much lower cost level.

    I would not be surprised if Apple is already achieving the very thin profit margins that are Amazon’s ultimate goal

    • Management has begun to say that iTunes runs “slightly above break-even” while before they insisted that it was designed to run a break-even. No content (virtual or otherwise) can command a significant margin because distribution itself is commoditized (i.e. nobody can be a “better distributor” or improve meaningfully the value created.) If you are selling someone else’s work all you can do to grow is to sell more of it.
      What this says (to me) about Amazon is that it is perceived as a monopolist whose business model is irrelevant.

      • M

        Horace,.. I have to go along with Christopher here,.. I’ve been buying essentially all my content from iTunes for years and we’ve got nearly two terabytes of stuff all purchased through iTunes,.. So sure I’m an outlier at the moment,.. But what happens when I’m not?

        I hear all these people that are talking about credit card fees on 99 cent purchases,.. Sure that’s an issue but what about when I buy a whole season of a television show at full retail? Many times over? Movies? Five 99 cent apps in less than 24 hours?

        Yes,.. They also provide a huge amount of content for free and services like iCloud and that costs money,.. But it is exactly the sort of cost which is falling at an astounding rate.

        Terabytes of content purchases is extremely sticky,.. So maybe that is all there is to this,.. but I’m not convinced.

        ITunes is a big Robot that sells stuff,. Yes it costs money to run and needs many workers to keep up and running,.. But then if it reaches some magical scale? Here I don’t mean magical in the magical sense but more in the sense of barely break even to somewhat profitable to exponential earnings growth that lags revenue growth at least initially.

      • adamhodgkin

        I am also sceptical about Apple’s allocation of costs. Management has discretion in how it allocates some of the shared costs for its businesses. It surely is convenient to maintain that distribution margins are razor sharp. If management feels that it should put the bulk of its datacenter costs onto iTunes, no one will pick a fight with them about that, they can do that with a reasonably straight face. Apart from the transaction fees to third parties, it is hard to see where iTunes could be expensive. Apple doesnt pay for exclusives, or pay advances. Is there any evidence that iTunes requires the employment of “many workers”? It obviously has none of the property or plant costs associated with Apple’s own retail operations or Amazon’s distribution centre.

      • M

        Some people seem to have the idea that it would be unethical for Apple to lean here. I’m not one of them. You are correct, they have latitude in how they draw the lines around this business,… And huge incentives. Horace has done great work describing how Hollywood operates.. And from what I have seen the music industry isnt any better,.. And App developers whine about Apple’s cut when the reality is they have near zero in terms of overhead,.. They might do their own marketing but Apple charges nothing for the shelf space,.. Okay $100/year and you can only dev on a Mac,.. So Windows developers might think twice.

        No it isn’t a guaranteed windfall,.. But it is a very cheap way to go into business,.. And if your app sells you can mostly just let the money roll in. That is nothing to sneeze at,.. Yet the screeching is incredible over Apple taking a cut.

        So I guess where I stand is that Apple has to downplay earnings here because the greed of the other players is beyond reason.

      • beidaren

        what about bandwidth cost to transmit the content?

      • Walt French

        These would be reported as part of Apple’s costs — if they were enough to be measured. Even retail prices for bandwidth are de minimis.

      • adamhodgkin

        And its relevant that content bandwidth costs fall on the publisher in the case of games and apps. Not sure about music and films, but when an app is sold/given the data feed goes direct from the publisher to the user. Only the transaction happens at iTunes. Apple would not be so generous in providing shelf space for free apps if they had significant bandwidth costs associated.

      • The question I would have about costs is what fraction of iTunes sales require human intervention from customer support.

        I would expect that the equipment cost per transaction is falling: both power and hardware cost per transaction should be falling, since the transactions shouldn’t be any more computationally complex than they were when the store started. The increased complexity of the store’s UI may eat some of this, but I’d be surprised if the hardware costs per transaction were even holding steady. Moore’s Law is a powerful force….

        However, customers will have problems with the automated system, and Apple has to pay people to straighten them out. And people are a lot more expensive than hardware, generally. So what fraction of iTunes transactions require a human to do something specifically for that transaction, and is this number increasing, decreasing, or staying the same with the scale of the store? Ditto for the time the human has to spend on these exceptional transactions.

        I don’t have numbers for these questions, and I’m not sure there’s any way to get them, since I don’t think Apple breaks out employees associated with the ITMS. There are a number of variables needed to quantify this: fraction of exceptional transactions, employee time per exceptional transaction, and cost of customer support employees are the ones that come immediately to mind.

        We might be able to guess at the number of employees required to service a given volume of web sales transactions by looking at a company that’s essentially all automated web transactions. eBay is one that comes to mind (Amazon has too many physical operations, I suspect, to use them).

      • Tatil_S

        If that exponential earnings growth at the store has not happened at $12 billion worth of annual sales to hundreds of millions of customers after 10 years of steady build-up, it ain’t never gonna happen.

      • M

        Here is how I get there,… We already have exponential growth in purchases,.. So we only need to lower overall costs of running the store relative to revenues over time,.. Which to me seems like a given but it is also clearly highly speculative to assume that revenue growth will continue at the current trajectory.

        I’m assuming it will, and that may not be true. I may always be an outlier.

      • Tatil_S

        I am not sure I follow. Retailer margins are generally pretty small, granted they don’t always pay for the items sold until they are sold and sometimes they even have the right to return unsold stock, so their risks are not all that similar to producers of such goods. Hence, Amazon or any other retailer could find margins that Apple would call slightly above break-even pretty attractive. Doesn’t that make Amazon’s business model still relevant for the retail industry? Besides, better user experience can allow a retailer online or offline, to charge some premium. Considering the tiny margins common in retail, that might make a big difference in profits.

      • Henry

        Horace, this is an interesting thread and post. I’m also sympathetic with Christopher’s points and like his questions.

        Regarding your assertion that distribution is commoditized, wouldn’t telcos (e.g., Comcast) count as distributors? Don’t they make decent margins?

        Apple controls the content portal for > 300 million users: doesn’t that give Apple some monopoly power? If Apple can continue to decentralize content production, which they have already done with apps, Apple gets even more power. Apple already keeps 30% of app and e-print sales.

        I wonder if Apple could eventually (i.e., in a few years) get enough revenues and earnings from content such that the Apple story relies less on high-margin device sales and more on high-margin content sales. After all, digital content is all fixed cost and hence could earn very high margins. Apple’s current content arrangement would have to change a bit, but Comcast must get over $1000 in annual revenue per customer. Maybe Apple can capture a similar stream somehow.

        This is too complicated for me to think through, but maybe you’ve already considered the possibility.

      • Comcast is a telco or network operator. Distribution is the means by which they monetize their network. The IP networks (internet access) are priced differently even though they may increasingly be used to distribute the same material (and more.) The contrast between IP and broadcast network business models is at the root of the coming disruption in media distribution. I believe there is diminishing inherent value in the network infrastructure and thus the “distribution premium” will disappear.

      • I think Apple IS in fact trying to be heads and shoulders the best distributor – a world-wide platform offering complete aggregation of all your digital content across all your devices in one place. They are creating (arguably) the best devices for experiencing content and the best services for content management and access.

        It’s down to a few players that are trying to do the same thing (e.g. Google, Amazon, Microsoft). But it is Apple’s game to lose. Note Samsung has not even begun this effort. I love seeing Apple expand it’s iTunes footprint in more categories and countries.

        With Apple’s growing device footprint and content services comes leverage in getting other content providers on-board. For example, the WSJ recently joined Newstand finally after holding out. Apple is now earns $6/mo from my monthly $20 WSJ subscription.

        Another example/opportunity is distribution of Movies (and other content) into China. If I was a US movie studio executive, I could see Apple as a safe, viable partner to monetize that audience on mobile devices, where I may not feel the same way about Amazon or Google. (I’m not sure Google even offers Google Play in China).

        The content profit margin may be small (certainly by Apple’s hardware standards), but can it increase with scale. And, to what extent. At the end of the day, what is the net $ profit opportunity.

        I think by Apple’s results it will always be “small”, but I think by any other measure it could be material.

    • stefn

      iTunes can be Apple’s best lever ever in its competition with Amazon. While Amazon will require thin margins at least, Apple’s business model (sell a great electric razor, not blades) can allow it to set highly competitive prices on all digital content. Just to say: Amazon has wrecked publishers and bookstores both with its pricing; Apple could do the same to Amazon by selling the “blades” at cost. And it will be Amazon’s own fault: de facto and de jure, it took pricing away from publishers and Apple in round one. In round two, Apple lowers prices on all content (tunes, games, apps, books, and shows) to a buck. As Horace, there ain’t nothing Amazon could do to adapt except to continue to sell pie in the sky to Wall Street as best it can.

      • stefn

        Rant alert: Amazon and Google think they have played Wall Street over the last decade. The truth is both are crude wrecking balls run by Wall Street. It loves stocks as stocks; sometimes it seems Wall Street hates everything but stocks. Any stock that promises to end up the last stock standing, a monopoly, another Microsoft, is especially dear to WS’s drunken, shrunken heart. It deeply lusts after one stock to rule them all; one stock to bind them.

  • M

    Okay,.. Horace I think you are usually very adept at figuring things out.

    But personally I have been listening to Apple conference calls for a long time and just above break even is ambiguous at best,.. And it is in Apple’s interest to at least give the impression that it doesn’t make money here. That is not so different from earnings sandbagging,.. It is politically smart and there is no downside

    My sense is that this is a large and still rapidly growing business with huge profit potential and Apple is trying mightily to downplay it… At least as it reflects profit potential.

    It is important to Apple strategically to downplay this part of the business for now.

    Potentially,.. They are now at a run rate where a cheaper phone all of a sudden could make sense based on later content sales… But then the question is do the metrics fall to Android levels? Does it matter if they do?

    • beidaren

      people who buy cheaper phones do not buy a lot of content.

      • I’ve written in other threads that, IMO, one of the big potential increases in “phone” sales for Apple is not a “phone” at all — rather an iPad Mini with call/messaging capability. A 16 GB iPad Mini LTE sells for $459 — an unlocked 16 GB iPhone 4S LTE sell for $549 — $90 more.

        Where this becomes becomes significant is for emerging [technology] countries — where they have a choice among a smart phone, phablet, tablet, laptop and desktop for their first/only home/personal computer.

        I suspect that an iPad Mini phablet would be the first choice for many of these people.

        …And Apple Tablet owners do buy apps and content!

      • I agree completely. I believe Apple has already started disrupting the iPhone with the iPad mini. Most of my incoming calls are now placed using FaceTime. If Apple releases a revised iPad mini in the Spring and drops the current version below $300.00 a lot of people will upgrade every year.
        This will also be quite profound for education. Here in Canada most kids over 12 years of age now already have an iPod. Free to $10.00 education apps will proliferate and they will be able to be purchased personally, eliminating the need for any additional school budget funding.

      • An iPad mini with voice capability would be super nice.

      • Pointebasic

        Voice capability might be especially attractive for some one who carries a purse (that is, a convenient place to “always” carry an ipad mini sized tablet). Add a bluetooth headset and you have a pretty good compromise if one can only afford one computing device.

      • zato

        I agree. This is the most important direction in touch-screen devices. I don’t know how Apple will respond. There is no reason why these miniature touch-screen computers we carry around have to be small enough to hold in one hand. That is a legacy from cellphones.

  • ChKen

    Great set of charts.

  • The lack of profit for Apple in running iTunes shows just what a hard time their competitors are having with their own online app and media stores. At least Apple has the profits from device sales to help fund iTunes. Google, Amazon and others have razor thin margins or even losses on device sales, and it’s hard to see why their online stores would be any more profitable than iTunes is. So are their profits to come from? At least Amazon also has revenue from orders to it’s retail business, but that operates at very low margins too. It looks to me as though Apple has them all backed into a corner with nowhere to go.

    The only exception is Samsung which, like Apple, makes it’s money on device sales. This situation is the exact opposite of the predictions by analysts I was reading a few years ago. The handsets are a commodity, they said. The money will all be in services. Well they may have been right in a sense. I think a lot of the value in iOS and Android is in the services, but the way that value is captures is through device sales. What would an Android phone be without the Google services it acts as a gateway to? Of course, Samsung gets to tap that value for free.

    But is there any way to measure that value? How do you measure the value of a business when it operates break even, but is a huge part of the value proposition for a more profitable business?

    • rational2

      Amazon and Google barely have profits on their hardware device sales, but we know Apple has no such problem. Similarly, just because Apple has a hard time making money running a data center and cloud services doesn’t mean Amazon has the same problem.

      Amazon practically pioneered the cloud and has used lean and mean data center operating philosophy from the beginning. With a wide range of cloud services and the number of years they have had to perfect it, I am willing to bet their data center operations are much more efficient than that of Apple.

      Apple doesn’t have the same experience running a data center and online services as Amazon and Google do. It is as hard for a newcomer to become an excellent online service provider as it is for a newcomer to make and ship tens of millions of phones and tablets a year. I think it would take several more years for Apple to improve its online services to reach the point where Amazon and Google are today — assuming they are focusing on solving that problem.

      Developing and operating services dealing with large data sets, large data flows, large number of connections, guaranteeing high availability etc is a hard problem.

      • Tatil_S

        When it comes to iCloud, sure Apple might be a fledgling, but iTunes has been around for a decade. Besides, I am not sure if iCloud is included in store costs or assigned to software or something else.

        Amazon and Google may have higher costs than Apple on making hardware, but a lot of the margin analysis available online relies on roughly the same component pricing (BOM). When they are assumed to be losing money, it is because of the difference between the component costs and sale price. The newcomers may have higher assembly, design, test, supply chain or customer service costs, but the margin calculations are done without much of this variation taken into account or the whole category is excluded from BOM. Therefore, the apparent no-margin business is the ceiling. This is equivalent to calculating margins based on the agency fee percentages of each store and assigning the same credit card and bandwidth costs, as each one has more than enough volume to qualify for the lowest pricing tier available. The remaining “fixed” costs may present some wiggle room to eke out more profits from store operations. However, when agency fees and sale prices are either the same or lower (making revenue per item the same or lower) and when a large chunk of the costs are the same, that wiggle room does not look all that great to me.

      • If Amazon is so efficient in it’s operations, why after 18 years in business is it still struggling to manage a sustained rise above break even, with a current P/E ratio of a jaw-dropping 2665.

      • rational2

        I made no such claims about Amazon’s business model. I merely commented on their drive for efficiency and parsimony in their operations. I have no idea it’d and when they will make tons of profit — but I believe they do run a tight ship in their data centers, making them a tough cloud services provider.

    • jameskatt

      Samsung spends $12 BILLION a year to market its Android Phones and tablets. This is why it is successful on Android and HTC and the others are losing money. But $12 BILLION a year in marketing is a HUGE expense that would not be made up by having its own content store. In comparison, Apple spends $2 Billion a year in marketing.

  • Prophets rarely care about profits.

  • jambani

    Given the estimated data points from AT&T and Verizon regarding iPhone unit sales, do you have any more confidence in your estimates?

    • This year iPhone activations are no longer published by operators in their quarterly reports. Estimates vary but from what I’ve read, I think 50 million is possible.

  • FadFooFee

    Looks to me like they may well be onto something dude. Seriously.

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  • foolcat

    This estimation (12 billions) is higher than the “Other music related products and services” revenue in Apple 10K report which “Includes revenue from sales from the iTunes Store, App Store, and iBookstore in addition to sales of iPod services and Apple-branded and third-party iPod accessories.”

    • That’s correct. Apple does not account for app revenues in their entirety in the music account. Apps are booked as agency sales, meaning only 30% of gross. This is why the Music line in the income statement is not growing as quickly as downloads or iOS shipments.

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  • Question: How does this calculation match with the “official” financial reporting?

    Apple reported in item “Other music related products and services” (assuming this is iTunes in total) revenues of 6.3 bn for FY11 and 8.5 bn for FY12…

    • Music line revenues don’t include all app revenues. They include only the portion that Apple keeps as its “agency fee”.

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  • sbono13

    Horace, I think you are making an error by assuming that the iTunes revenues that Ple reports are “media only.” In their Q4 report, Apple had this to say: The iTunes Store generated all time record results, with revenue almost $2.1 billion thanks to continued strong sales of music, apps and video.

    This implies that App sales are already included in the $8 billion a year revenue number reported for 2012, which changes the interpretation quite a bit. Since App sales are grossing at a $4B/ yr run rate, per your calculations, Apps represent half of iTunes’ sales.

    On the other hand, I would be surprised if music sales were not greater by themselves than 4 billion downloads a year. Something is not quite right.

    • I am not assuming iTunes revenues are media only. iTunes revenues are music, apps, video and books. The App revenues are booked at about 30% of gross under the agency accounting method. Other media are booked at approximately 100% of gross.

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