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Day March 22, 2013

So long, break-even

The following is another excerpt from a report titled “iTunes Business Review” which will soon be available for purchase through the Asymco Store. If you are interested in the product please get in touch.

iTunes store will be 10 years old next month. From its inception Apple has stated that it aims to run the store “at break-even”.  The business has grown so rapidly however that its profit-free nature has come under severe pressure.

The reasoning goes that as more media types have been added costs have increased but revenues have increased even faster. Consider the estimated gross revenue base as shown below:

Screen Shot 2013-03-22 at 3-22-2.39.55 PM

What is known as iTunes today has quintupled in seven years. Although cost of content sales are likely to have been preserved as a ratio (about 30%) the vastness of transaction volume (estimated at 23 billion item transactions in 2012 alone) implies that there are some significant economies of scale.

This implies that the operating costs are spread more evenly and that therefore the possibility exists for some operating margin.