The allure of iTunes

My estimate of last quarter’s iTunes gross revenues suggested a spending rate of $40 per iTunes account. It would make sense to consider how that figure changed over time. The following graph shows the pattern:

Screen Shot 2013-05-14 at 5-14-9.49.40 AM

You can read each bar in the graph as the total “ARPU” or average revenue per iTunes user[1].

I overlaid a graph showing the total number of accounts as reported by Apple to the (retroactively) estimated revenue structure. Account totals are measured with the right axis and ARPU with the left.  Note that I also broke down each component of iTunes as currently defined (Music, Video, Apps, Books, Software and Services.)[2]

The time frame covered is from Q2 2007, or the quarter prior to the iPhone launch. A few patterns emerge:

  • When there were no iOS devices (and hence no iOS apps) the revenues of iTunes consisted mostly of music sales. Those revenues were, on a per account basis, roughly comparable with Apple’s Software revenues.
  • As iOS devices proliferated, the number of accounts (and users) grew. They doubled in the first two years (2007 to 2009) and doubled again in the following year (2010) and doubled again the following year (2011) and doubled again in the following 18 months. This rate of growth was accompanied by a reduction in the iTunes ARPU of about 50% (from $99 to about $45).
  • The reduction in ARPU has moderated in the last few quarters. ARPU fell 10% from $50 to $45 during the last doubling of accounts (from 225 million iTunes accounts to  500 million accounts.) In contrast ARPU fell 20% from $74 to $58 during the penultimate doubling (from 100 million to 200 million)
  • However, growth in accounts is broadly inversely proportional to growth in ARPU. In other words, the faster the growth in users the faster the decline in ARPU. The recent moderation in ARPU erosion is also coupled to a moderation in user growth (most recent doubling took 18 months vs. 12 months for previous doubling.) This is as would be expected as a broader, later user base tends to consume less than a narrow, early base. This can be seen in the following scatter plot:

Screen Shot 2013-05-14 at 5-14-10.35.02 AM

  • When seen as a percent of mix, Apps have grown to be the largest component of iTunes spending. Apps have 35% “share of wallet” while music has dropped steadily from 40% to 27% (or $39 to $12/yr.) This is shown in the following graph.

Screen Shot 2013-05-14 at 5-14-10.34.45 AM

As apps have grown to consume more and more of users’ time it stands to reason that they should consume more and more of users’ wallets.

And as accounts reach one billion, we can begin to think about the disruptive impact on other media types. Whereas video, books and music are targeted to smaller user bases, apps are broadly consumed. Developers like Rovio or Supercell can offer their products to billions while TV producers can only hope for millions. Apps are becoming the universal medium for entertainment and iTunes the universal distributor.

Talent is catching on to this faster than those who manage and distribute their work. The inevitable result will be a mass migration of talent away from the established content industries. Old media won’t fade due to a loss of users. It will fade due to a loss of talent.


  1. An account is not necessarily a user so perhaps more appropriately the acronym should be ARPA (average revenue per account). Unfortunately that acronym is taken.
  2. The complete model is available for purchase through Asymco Store.
  • Great analysis! This makes for a good case that Apple will start to look into subscription services in the future to raise ARPA. Apple Care (covering all devices per user), music (iRadio), and even television (some form of future Apple TV package)

    • Not sure why people keep pushing Apple to do some kind of subscription service. Is it supposed to be some kind of magic bullet to even greater profitability?

      Apple’s business strengths have always been in purchase-to-own, non-subscription products. eWorld was a subscription based product. MobileMe was a subscription based product. Both flopped. iTunes TV show rentals weren’t subscription products, but they weren’t purchase-to-own, either, and they were discontinued quickly. Does Apple have anything other than iTunes Match and extra storage for iCloud that are subscription based, right now?

      Apple’s costs don’t go down for providing subscription based content–the same number of bits need to be transferred. Their revenue per bit (megabyte) transferred would go down, though. If they’re supposed to make it up in volume, how much more volume (i.e. total subscribers) would be required to make up for the loss in revenue from people who switch away from direct purchases?

      Is it that (some) people desire subscription based music/video/etc. products from Apple because those have failed so massively from Apple’s competitors? Is there some feeling that maybe, just maybe, Apple will finally “get it right” with subscription based services, like the iPod was the digital music player finally “done right,” the iPhone was the smart phone finally “done right,”and the iPad was the tablet computer finally “done right”?

      Personally I’m glad Apple has mostly avoided subscription type pricing. I don’t want whatever content I’ve gotten from iTunes to suddenly disappear because I haven’t paid my monthly/yearly subscription fee. I also don’t want to have to have that fee continually autobilled off my credit card even if I haven’t been using the service.

      Additionally, as can be seen from the meagre royalties paid by services like Spotify and Pandora, subscription based services have been rotten deals for content creators.

      • obarthelemy

        I think the issue is that if you see iDevices as mainly content consumption devices, there’s a problem when ever less content is being bought by each device. Actually, the problem is slightly worse than that, since the figures are per account, not per device, and a lot of users own multiple devices (I’m up to 7: 3 tablets, 2 phones, 2 desktops; my iBrother is up to 3: iPod, iPad, iPhone… I’ll probably get him an Apple TV for his upcoming BDay , so he’ll have the full set ^^)

        Anyway, there seems to be a huge untapped revenue opportunity. Probably due to

        – intermittent, metered and/or slow Internet access. Watching movies is no fun if you’ve got to pre-load them hours ahead, or get interrupted underground/in the air/in the countryside, or if you’ve got to pay for data overage on top of the movie’s price. Especially when on-device memory is scarce and outrageously priced.

        – watching movies on a mobile device is not very pleasant. Even on my 6.1″ phone, I do that only when I’m really tired of everything else (reading, music, games). They’d have to pay me to watch anything on a 4″ screen. At home, I’d rather watch a TV than a tablet (even my 13″ one), especially with an extra TV + Android stick for dlna/LAN access costing half of what a tablet does. Plus, sound on phones and tablets is mostly weak and bad. I’m amazed they want tablets and phones to replace TVs and radio, yet I can’t hear either while cleaning, doing the dishes nor driving.

        – non-portability: Your argument that content vanishes once the subscription expires also works against the whole ecosystem: your content vanishes the moment you switch, which is especially an issue with a single-source, mostly single-platform ecosystem like iTunes. Apple could widen their appeal by making iTunes multiplatform: it currently does Windows 8, but not Android nor WinPhone nor RT. Since about 10% iPhone users intend to switch, that’s 10% of users which probably hold off on iTunes content purchases.

        So, given those drawbacks, maybe trying anything to get more money out of those who are happy buying content anyway makes sense, and subscriptions are one way to do that.

      • Walt French

        Those are realities, not drawbacks.

        Another aspect of the reality is that iTunes now sells about ¼ the dollar volume of Amazon Inc. iTunes is growing about as quickly as Amazon (32% p.a.), while making roughly the same $2.5 billion in profit. Amazon will probably continue to out-grow other retailers for physical products, but has probably already picked the low-hanging fruit, meanwhile, it is still trying to work out this whole digital thing.

        You’re not unusual in preferring to watch movies on a larger screen: despite equal installed bases of smartphones and Windows PCs, the latter generate 90% of all browsing and so probably even more of all the video-watching that doesn’t take place on TVs. But Apple also has a pretty good story there, between Apple TV, iPads and iPhones. A viewer has easy options appropriate to various circumstances, options that Google, Amazon and Microsoft don’t match.

        I switch automobile brands almost every time I buy. With all my music in portable formats, and no interest in watching “The Shining” 75 times, the lock-in doesn’t actually exist. Rather, Apple just offers the best platform for my media consumption.

      • handleym

        This is a problem for content providers, not for Apple.
        There is no reason for Apple to solve it at the expense of customer satisfaction.

      • handleym

        “I’m amazed they want tablets and phones to replace TVs and radio, yet I can’t hear either while cleaning, doing the dishes nor driving.

        obarthelemy, you might get more respect here if you refrained from making such inane statements.

        Who is “they”?

        Apple, for example, has never, in any capacity made claims to the effect that phones and tablets will or should replace TV and radios. They’ve always considered them augmentations to these devices — hence AppleTV and the whole concept of AirPlay.

        One does not achieve useful analysis via broad brush ranting which bins together in undifferentiated fashion the pronouncements of multiple different companies, the poorly though out claims and wishes of various nuts on the internet, and even the deliberate parodies and spoofs of shows like Saturday Night Live.

      • Walt French

        One rationale is that a subscription service allows high-consumption at a better price, since it’d be priced for average consumers. For example, our SiriusXM subscription allows us to hear some favorite music many hours per day—we’re opera fans and there’s a channel that ONLY plays that—for about the cost of one CD per month.

        If we only listened an hour or two a week, or if the selection weren’t well-targeted, the purchase option would be the better option. As it is, Amazon just shipped a half dozen CDs — some Indian ragas to delve deeper into after listening live at a friend’s house recently—and we enjoyed a wonderful Levine/Voigt/Pavarotti Aïda during dinner last nite over Sirius.

        Regards Spotify and Pandora, they’re currently priced and positioned to catch marginal fans who are happy with generic (as in genera) music. Just like Horace’s analysis of (hard-) core versus newer iTunes users, they deliver incremental, generic-priced revenue to musicians who have core audiences elsewhere.

      • You make a great argument for your generation but the majority of music purchases are from a younger demographic. That demographic is getting used to being able to hear any song they want anywhere they are. If Apple wants to remain the market leader in music they will switch to a radio/subscription service. Sure they could still sell downloads to those that only want an album or song or two a year but those are the fringes.

        Most people my age or younger either subscribe to subscription services or they simply don’t pay for music. Getting it from Youtube, SoundCloud, Groove Shark or they use the free versions of subscription services.

      • Walt French

        You’re right that my demo has different habits, tastes and resources. But especially since I worked as a radio announcer in my teens/20s, I remember the listening approach of your demo when I was in it — mostly, people tune into a service, picking the station that best matched their tastes. Pretty much the same today. The difference is that there are many more pop genres today and that broadcast radio has mostly turned to crap, driving casual listening to subscription services.

        But you’re not right that technology demands subscriptions. Every iPhone today has iTunes, with many dozens of channels available. You already have free choices among many dozens of stations for any genre you want to name.

        If *I* ran Apple, I’d be looking not for how to capture some additional revenue stream — as Tim Cook said, not to look at Apple-branded mufflers — but rather stay focused on what I could do so much better than anybody else and also so well that people would buy, and love, my stuff. I don’t deny that many people like subscription services — I buy a couple — but I don’t see how making them Apple-branded makes them a whit better than the mostly unsuccessful offerings from Real Networks, Sirius, XM and others. Much better to make sure that Apple products deliver the best way to enjoy the constantly-changing media landscape.

      • “Apple’s business strengths have always been in purchase-to-own, non-subscription products.”

        It’s 2013. Bandwidth isn’t an issue and streaming content as oppose to owning it is growing by leaps and bounds. Streaming music is the future. Period. Streaming movies and television content is already preferred now. If Apple follows your advice they’ll be Blockbuster while everyone else is Netflix.

      • selfassured

        You’re confusing streaming with subscription or ownership. You can stream in either case.

      • Sure you can stream what you own but I assumed I wouldn’t have to clarify it to this crowd.

        To be clear, the world is moving to instant access to everything, all the time for content, particular music and in a lot of cases film and TV. If Apple continues on the mantra that Steve Jobs proclaimed years ago that people want to own their music then they’ll be left in the past as everyone else moves on.

        However I don’t believe this is the case as there has been talk and rumors of Apple looking into doing everything I described above. If the technology is there (it is) and the user base is willing (they are) subscription models for content are far more profitable for Apple and content creators.

      • obarthelemy

        That’s a bit of a best-case scenario. I know a lot of people who still have issues with Internet bandwidth, reliability, even metering in Canada. Nothing beats having your media on-hand.

      • Walt French

        The world is moving BACK to streaming, which worked economically when the audience had more homogeneous tastes, and now works again because the internet has lowered bandwidth costs.

        You’ve seen the complaints about discovery/curation of the App store. It’s a knotty problem, and it’s the SAME problem that subscription music services face: letting people know how to find music that appeals to them as their tastes, moods and circumstances change.

        Apple’s history in this area isn’t totally miserable, but it’s also not so good that I’d want to bet much money on it succeeding. Why can’t Apple be happy to let somebody else—maybe Pandora or Sirius—make bajillions of dollars doing it?

      • I run into places where bandwidth is an issue all the time. Often there is no data at all. If you never leave the confines of urban society maybe it’s not a problem, but it’s a big world and there is too much awesome stuff in it to limit myself to places where the little “3G” symbol is.

      • Most subscription services have local storing features.

        I’m not sure what world people are living in where owning 10,000 CDs and 400 DVDs/Blu-Rays seems logical. Netflix is now. YouTube is now. Streaming music is now. You can kick and scream all you want but it’s happening. By the way Google just announced their streaming service today as well….

      • No one is kicking and screaming. Just not buying it.

        People have been saying subscription services are the way music is going for more than 10 years and it’s still a fraction of the market. Spotify, one of the biggest streaming services has 20m users, only 6m of which pay for the service. iTunes has better than 500m users.

        I’m sure it’s going to continue growing, but people are going to continue buying music at the same time. You are confusing something you like with some sort of market imperative.

      • But people aren’t continuing to buy music. That’s my point. You just said it yourself that streaming music is growing. Just because it existed before doesn’t mean it’s not going to take off now. Even 5 years ago there were many factors that made having a music subscription a sub-par experience. Today that’s not the case. In fact it’s the best for most people, they just don’t know it yet.

        I’m not saying you have to like it or choose it, but not seeing it as the obvious way most people will consume music is like saying Netflix would be a niche market 3 years ago. If they’re smart Apple will release a streaming service this year and move a large percentage of users over to it that didn’t even know it was possible to listen to almost any song you want instantly on all your devices.

        I’m going to save this link and come back to it in 2 years to see how many more millions of people are streaming music instead of purchasing it.

      • Mobile bandwidth is improving but it’s not nearly low cost enough to serve most people with streaming, especially simultaneously.

      • You’re mistakingly assuming ownership equates download and not streaming. Look into iTunes Match and Apple TV as currently architected. Media ownership does not imply local hosting. Consider that subscription / ownership correlates with discovery / knowing what you like.

      • But iTunes Match is still tied to the old model of you buying everything individually and Apple hosting it. That’s was cool tech 5 years ago but who buys movies or TV shows on iTunes anymore (if ever)? Music still has legs because it was one of the only legal way of acquiring music the past decade. But now we want instant access. Where do you go now to hear a new song? YouTube. Subscriptions allows instant access to everything and allows sharing. Not getting ahead of this could cause Apple to lose it’s music dominance in the future.

      • I don’t know who buys iTunes content but whoever does spent $5.7 billion in the last 12 months on music and about $870 million on videos. The distinction between the jobs to be done of ownership and discovery is very clear. There is almost no overlap between these jobs in people’s minds.

      • anonymous_coward12

        spotify at $10 a month is a much better deal than buying from itunes. so far the big limitation is that apps can’t access spotify for their music. like say runkeeper using spotify instead of the itunes library.

      • handleym

        It is ONLY a better deal if you imagine you’re going to buying $120+ of music a year for the REST OF YOUR LIFE.
        Kids may believe this, but it’s not actually true. They’re going to reach age 30, find they’re just not that interested in buying new music — but they don’t have an existing stash of music that they’ve bought, rather they’re stuck paying that $120 sub for the rest of their lives.

        Personally I think the people crazy about this model are young fools who imagine that THEIR life pattern is going to be different from everyone else’s, against all history and experience.

      • anonymous_coward12

        i’m almost 40 and think spotify is a good deal. i maxed out owning a little over 200 CD’s at one point. lots of them scratched over time.

        and i still haven’t listened to a lot of music from decades ago that i plan to listen to at some point. buying is too expensive

        its free unless you listen from a mobile device and totally cross platform.

      • obarthelemy

        I maxed out at over a thousand, but got most of them FLACed now. For discovering music I’m not sure I’ll like, I’m using YouTube or bittorrent. That’s not nice, but I bought so much stuff I didn’t like in the end, I figure I’m allowed to make up for it :-p

      • obarthelemy

        I’m with you on that one. Actually, kids behave that way because they *don’t* project into the future ^^. The music I most listen to today is pretty much the same as my teen years’ pop/rock/disco, plus Jazz and a few outliers. I’m mighty happy I actually bought it, and can now get by buying at most one album every other month.

      • “spotify at $10 a month is a much better deal than buying from itunes. ”

        For a while. Then it’s not and every month after that, the economics only get worse. I’ve bought less than $50 worth of music over the past year and that’s up from my average over the past 5 years.

        Not only are streaming services more expensive in the long run, there are still a significant number of places where streaming just isn’t possible or it’s prohibitively expensive. Get off the beaten path a bit or board a cross country flight and suddenly the illusion of ubiquitous and cheap bandwidth is gone.

        Streaming is (as Horace suggests), a great *discovery* tool for discovering new music, that’s it’s ideal use.

      • “as can be seen from the meagre royalties paid by services like Spotify and Pandora, subscription based services have been rotten deals for content creators.”

        Subscription royalties benefit from scale. The service is just taking off with Spotify only having 6 million paying users (but growing fast) …in 5-10 years the music industry could theoretically make MORE money than they did in the hey day of CD because more users, more royalties. Or they can believe like you that everyone wants to own content while everyone under 25 streams songs on Youtube and SoundCloud and revenues from music on iTunes continue to decline.

      • Walt French

        I’ll call BS on subscription services “just taking off.” They’ve been around for a couple of decades; incremental home bandwidth has gone free during that period, and as you note, mobile bandwidth is getting cheaper all the time. But with half of the US owning smartphones, we should be at critical mass if it was going to work.

        My impression is that the disconnect is that if you’re listening to music enough to want a pop stream, you are not moving around and interacting with the outside world. Myself, it’s not worth the few seconds to plug in my earphones and start up one of my favorite choices, unless I’m at home or work, where I have many more choices than the modest-fidelity Pandora or whatever.

        Yes, many people under 25 stream songs on YouTube so they don’t have to pay with anything but their time fiddling. Why anybody thinks they’re Apple’s target demo is beyond me.

      • If you just look at Spotify’s moderate success you can see the tipping point approaching. Yeah subscription services have existed for a while but they were horrible for the most part. MOG and Rdio are even better than Spotify which is growing somewhat rapidly. Google is set to announce their service tomorrow at Google I/O and Apple will likely announce theirs this year.

        Subscription services are the music industries last hope at growth. If they were smart they’d be championing it but they can’t look past today. As usual.

    • Walt French

      Maybe now that Google has announced its music service intentions, you could comment on where that fits in.

      Many of us listen to music courtesy of several different middlemen (Amazon, Sirius, broadcast radio, Pandora, iTunes, …) and are not so religious about who we do business with, so fast-on-its-feet Google would seem to be able to make a dent thanks to its massive scale … IF this streaming thing is as much a sure-fire success as you seem to think.

      • I think Google’s offering is compelling and competitive, especially for Android users (mobile app included). Being that there is no mobile app on iOS for Google Music it’s kind of non starter for Apple users, myself included.

        I’m curious to see what Apple’s vision of the future of music is. It seems they’re working on some hybrid of streaming radio and on-demand. Either way the concept of owning music will become more niche as mainstream folks learn about the options available. The weight of Google and especially Apple will push it past the bleeding edge tech/music lover, which is where it is now. I have about 20,000 songs in my library which I’ve bought or digitally converted over the years. Since Spotify came to the U.S. I haven’t bought a single album but I listen to more music than I ever did.

      • nicecalc

        And at $1 or more a song, it would take 167 years to make the same revenue from a $10 a month subscription service.

      • That’s the power of scale. As more people subscribe the rates increase. Right now there may be only about 10-15 Million subscribers to music streaming services. Imagine if that reaches 100 million or 500 million. The music industry would make more money than it ever has. Not to mention artist, songwriters and producers will continually get payed for their work for a life time instead of just the once time people purchase the song/album.

  • I would love to see the breakdown based on per-device. I’m certain those numbers aren’t available, but my suspicion is that Apple makes more apps revenue on the iPad than on the iPhone. That may well be a big part of why App growth has continued strong while other revenue streams have shrank relatively.

    • obarthelemy

      The one figure I saw was: for phones, iOS and Android at par, and iPad around $1 more. No figure for Android Tablet apps, but those are mostly the same as phone apps since Android suports different screen sizes/ratios/orientations/dpis for a single App/codebase, contrary to iOS.
      I can’t find the source nor the actual figures anymore.

      • Kizedek

        You keep raising this resolution thing, as though it is a great feature on Android. It may sure save the developer grief when there are thousands of possibilities, but it is not a panacea.

        Apple has simply encouraged the developer to include high res graphics and put some effort into thinking how he wants his app to function on a phone or on an iPad. The developer has a couple of device/screen sizes to think about and also tightly controls portrait vs landscape views.

        Often the developer completely rethinks the UI between the iPhone and iPad, and between portrait and landscape orientation. And this is great. I have apps that have different layouts or UIs on different devices and different orientations. Now, whether this is all in one code-base or not, I could care less. In fact, I would rather apps were as slim as possible for each device. All I know is I purchase the app once and I can put it on five devices of different sorts; and whether installed and used on iPad or iPhone, I get exactly what the developer intended for each device and view. Perfect.

  • obarthelemy

    “Apps are becoming the universal medium for entertainment”. Have they ? They show 50% growth per user over 3.5 years, which is nice, but not a lot. Apps look good only by comparison to Media which is sharply down.

    “The inevitable result will be a mass migration of talent away from the established content industries”. Is this a zero-sum game ? Will DiCaprio start writing apps ?

    ” Apps are becoming the universal medium for entertainment and iTunes the universal distributor”. With around 25% smartphone marketshare WWide, I doubt iTunes is universal anything ?

    Given the very low figures, how big an impact does advertising have ? I’ve stumbled upon anecdotal figures that seem to say Ads are 10-20% of sales, though that must be highly dependent on the type of App. Are there any global figures available ?

    While looking for info, I came across this interesting article:

    What surprises me most about App Stores (in general, both Apple and the Android versions) is the user-unfriendly mess they’ve degenerated into. Looking for apps is a chore, not fun. I’m amazed they’re not doing some Amazon-style automatic Recommendations yet… With the money involved, I’d even do human-curated recommendations (by segment, not those Editors’ picks that seem to want to cater to my nephews as well as their grandparents).

    I’m also surprised neither Apple nor Google are moving into games more aggressively. Very little work is required to let smartphone games run on a TV (from my personal experience, around 50% of Android games already do). With the expensive, noisy mess game consoles have become, users are falling over themselves (cf Ouya) to buy simpler ways to play games, watch content, and maybe use apps. Chinese Android sticks are available to do just that for $40, I’m wondering why no $100, branded version has popped up yet. Apple would have been better off doing an iConsole than an Apple TV.

    • fromthearticle

      “With around 25% smartphone marketshare WWide, I doubt iTunes is universal anything” — obarthelemy

      Going to post this again, from the previous article, maybe you missed it last time in all the excitement.

      “Canalys estimates that sales from iTunes App Store accounted for 74% of all app sales worldwide in the March quarter.”

      • obarthelemy

        The same Canalys say that, over the same period. Android accounted for 51% of Apps download, iOS for 40%.

      • I suppose that sales are based on revenue share which make the “Apps sales” share more interesting than the “Apps downloads” share in this case.

      • obarthelemy

        … until you make a “universal” comment :-p

        Plus it depends on how relevant ad revenues are. They are not listed in “app purchases”. And on development costs, which I linked in another post, and seem significantly higher for iOS.

      • ads

        Sure, but you would also have to show that Android users see more in-app ads, and by a disproportionate amount because they’re worth less as a target for advertising. has cost-per-thousand views at 40% higher for iOS and than iOS accounts for more than 50% of mobile ad spending, so you’re actually losing ground with your point here, seemingly.

      • Walt French

        I’ve seen exactly *ONE* quote from Rovio about how they like the long tail of revenues from ads. But all the other info is that ads provide a ridiculously tiny amount of revenue per app — perhaps a penny for an app that gets used a fair amount.

        Pennies *CAN* add up but all the stats are that they *DON’T*. Developers who rely on free apps are in the bottom of the income distribution, and don’t recover a living wage on their efforts — even though those efforts are less for Android than for iOS. There might be a chicken-and-eff effect of many lower-quality games on Android, making it more difficult to find good ones but making the income data less awful for developers.

        But all in all, the advertising story is miserable for all except a few. Smartphones are awash in useless ads that provide almost zero revenue to the developer because the ads generate so little business for the advertiser.

        If you want to think intelligently about ads, think about how Google’s key limit to growth is that we’re saturated in ads that don’t actually result in higher sales for business overall. Not by parroting some old hogwash about all the millions that free apps make developers.

      • obarthelemy

        And you should get your numbers straight, it’s not millions, it’s billions.
        Before pretending to think intelligently yourself, you should get your numbers right.

      • JaneDoe12

        …Google’s key limit to growth is that we’re saturated in ads that don’t actually result in higher sales for business overall.

        I’m not sure what you mean, but Google gets a lot of ad revenue from YouTube according to Morgan Stanley. They estimate that Youtube will do $4 billion in gross revenue and $711 million in operating income this year. By 2020, they predict that revenue will be $20 billion and operating income as much as $5 B.

        YouTube May Be Worth $20 Billion by 2020: Morgan Stanley

      • Walt French

        I admit being out on a limb here. But ads pay for themselves by generating sales that wouldn’t otherwise happen. At *SOME* point, more ad revenue just means higher-priced products that are less competitive against those with other marketing strategies.

        Some markets, such as airline tickets, are already ruthlessly price-competitive and already can’t support more advertising; others, such as lattes and cupcakes, seem to have lots of headroom. But all eventually face the fact that higher ad spending has to generate extra sales to offset the hit to profits.

        Google has become a superbly efficient way of delivering ads, but that doesn’t mean the market is limitless. My take is that people are already feeling this Dot Ad bubble frothing; good sites are dropping display ads as too much annoyance for the little payment. And the little payment is because the advertisers realize such little benefit from having their wares displayed for the 14 millionth time.

      • obarthelemy

        Quantity of ads is only one side of the issue, the other is quality.

        If Google can consistently increase ads’ value by making them more efficient through better targetting, their piece of the advertising pie will keep growing. 2012 Online ad spending was $130b wwide, out of $600b total ad spend, Google got $40b of that. There’s still room to grow the 600, 130, and 40 figures.

        Also, costs are probably fairly low, so margins fairly nice.

      • obarthelemy

        As far as advertising budgets go, the standard quote is from some 19xx capitalist whose name I forgot: “half of my marketing budget is useless… If only I could know which half…”

        Advertising certainly has a point of diminishing returns, and a point of negative ROI. I see no signs we’ve reached what Schmidt would call an “inflexion point” where suddenly ad spending starts seem less effective and diminish as a % of global output. There’ll be up and downs, geographical and supporting media changes, but if anything I thing global increase in incomes will lead to more, not less advertising as a %age a GWP (Gross World Product… is that a thing ?)

      • JaneDoe12

        Great reply! I see what you mean now.

      • obarthelemy

        Got very rough stats there: $1.5b in 2011 for display ads (twice that for search).

        interesting article:

      • Walt French

        Wanna try again? Your first link is 404’d.

        But while $1.5bil sounds pretty nice, it’s split among a HUGE number of apps/sites, with of course a few big dogs taking all the money, no? And how does that compare to app developer sales revenue?

      • truthseeker

        Also according to Canalys over the same period Android accounted for 100% of viruses.

      • Walt French

        We can’t really know the details behind these averages. But certainly one possible interpretation is that the Android user is more likely to play a free game for a little bit and move on to another. That covers both the much higher percentage of free downloads thru Android (about 75% vs 55% on iOS, IIRC), and the related survey info that iPhone users seem to spend about the same amount of time with their devices.

        All consistent with the notion that the iOS app marketplace is more satisfying to customers, who are willing to pay a few more pennies instead of spending time chasing down the latest free, but eventually disappointing, “meh” product.

      • obarthelemy

        Indeed we can’t, and we can dream up fancy explanations w/o any data at all to back them up but our ingrained biases, instead of trying to be intelligent and back up our ponderings with data. Such as:
        – users’ ratings for both ecosystems’ apps are essentially the same (which could indicate that iOS users are paying more, but for something that’s not better). As a proxy for customer satisfaction, that makes your theory un-intelligent (as often, with factless rants), unless you’ve got other info ?
        – that for paid apps, average listed prices for phones (excluding iOS ‘tablet’ apps) are pretty much the same too. That doesn’t mean actual sale prices are the same, I’ve got no data on average apps sales price. Maybe sales are skewed towards cheaper apps in one ecosystem or another.
        – $2+ apps represent the same %age of listings (again, listings, not sales) on both platforms.

        Darn facts !

      • CollinsInAfrica

        Perhaps not entirely true to your context in the developed world, many more people here in Africa use Android because the hardware is way cheaper. We also download free apps for the same reason. Good for us. From a business perspective I guess iOS is better. I think Android will rule frontier markets for long (and probably make little money while they are at it)

      • obarthelemy

        Also, as a warning to take figures with a couple handful of salt, web usage stats vary widely, StatCounter gets Android 37%, iOS 27%, making previous posts on this blog somewhat fragile.

      • whatdoyoumean

        Not sure precisely what you mean by this. With Android market share what it is, the difference should be much greater for equal use.

      • obarthelemy

        Indeed, but I’ve seen 75% iOS market share bandied about in here…

      • Chaka10

        As I sought to clarify elsewhere (and as Obar seems to continue to miss, or obfuscate), don’t confuse market share of current unit sales and share of installed base of devices. Latter is more relevant for consumption of content and other value through installed devices.

      • AppleLeadsWhatMatters

        No. Obarth and most others are confused by the global “marketshare” numbers for sales vs. the marketshare for the things that matter: app purchases, media purchases, mobile commerce, mobile web usage…you know, all the things that make a smartphone “smart”.

      • obarthelemy

        What makes a msartphone “smart” is not how much you pay for stuff you put on it.

      • Yacko

        Yes it does matter. Essentially it is a combo of mini POS terminal in your hand and a wallet. Amazon gets this, Apple does it well, and other companies out there are yearning to achieve the same thing.

      • obarthelemy

        that makes a $2 fart app more “smart” than a free Officie suite ?

      • Not yet. But surely it will.

      • obarthelemy

        cf FOSS, paid fart apps vs Free Office suites…
        “smart” is about use, not about cost. I’m not totally surprised at this issue….

    • Walt French

      Apple *IS* doing automated recommendations. It’s just that those aren’t very good generally—Apple’s particularly.

      Music / entertainment is a consumer good that isn’t likely to grow any faster than consumer incomes. Apple’s high early growth rate came from an expanding percentage of consumers using iTunes instead of Tower Records (RIP). Eventually — as in many years, I think — smartphones and their apps will also pretty much have defined what they’re good for, and the growth rate will settle into normal territory.

      In the US, we’re well past the cutting edge of apps, but with a very dynamic “jobs to be done” situation, the consolidation that’s typical of stable industries seems a long ways off. It seems reasonable to wish for software that’d read our minds — and more — about what we want, but just very unlikely because of the experimentation/discard model that’s so integral to this stage.

      • obarthelemy

        Digital media could (should ?) be growing apace with digital media viewers, if not faster. Apart from the ownership issue,

        I think a key aspect is compatibility with incumbent techs: hifi and TV. Why would I buy iTunes media if I can’t play it on my hifi/TV ? Apple’s AirPlay solution is elegant, but not backward-compatible and very costly. Android’s a bit more compatible (most devices have HDMI ports), and less costly (dlna and Miracast are almost free), but can be a bit more cumbersome to set up. Both are far from ubiquitous, and require some skills and some hardware.

        And I think there’s a missing piece in both cases: an easy-to use server to harbor all our content once and for all. I’ve set up a $700-ish 6TB LAN/dlna server for myself, that makes things very easy. It did take a bit of work, too much for the average consumer. Other people around me are struggling with file management, replacing HDs with SSDs then running out of space even quicker… Especially iMac users, confronted with both high costs and no expansion slots.

        Nobody wants to spend a few 100 $ here and there to interface their phone to their TV, and another couple handful hundreds + a few to a lot of hours of installation to store their media.

        I think until local storage and TV/hifi compatibility are solved (cheaply+easily), iTunes/PlayStore media will be seen as mainly mobile / one-use media, and sales will suffer accordingly.

      • anonymous_coward12

        the server is your home computer with itunes. very easy to stream to an apple TV

        no need to buy the SAN’s and all the other crap on the market

        and anything you buy on itunes you can always stream any time to watch. so its not like you have to have the files locally all the time

      • obarthelemy

        That’s NAS (network-attached storage), not SAN (storage area network). And it’s more reliable than an Internet connection, which might be slow, patchy, metered, down… A surprising number of people around me have one of those issues several times a month, in several countries (and, actually, “in the country” makes it worse :-p).

      • Chaka10

        “Apple’s AirPlay solution is elegant, but not backward-compatible and very costly.” Are you referring to the $99 Apple TV cost? iOS devices also work with an HDMI adapter. I find it easy to watch iOS content on the big screen, but my small screen becomes much bigger on a proportionate basis and more personal in my hands.

      • obarthelemy

        Yep. $99 per TV, hifi, …

      • handleym

        “Especially iMac users, confronted with both high costs and no expansion slots.”

        Oh for fsck’s sake. Ever heard of USB?

      • Chaka10

        It’s these kinds of posts by Obar that make me think he’s a front for other interests (let’s just say). He spews party-lines with no backup, sort of like the Samsung commercial just baldly claiming the young demographic (notwithstanding data to the opposite).

      • obarthelemy

        Thats a kludge: USB = one or two unsightly cables, possibly a supply brick if you want a cheap and large 3.5″ drive instead of a 2.5″, a box hanging off of that (ruining looks, creating reliability/handling issues…), and a lit PC that might be in a bedroom, with the parents trying to sleep while the kid watches a movie…
        External drives are fine as a temporary measure, they’re not fine as a definitive solution.

      • handleym

        So your point is: aesthetics matter when you can use them to criticize Apple, but not when people use them to criticize other companies?

        WTF is your ACTUAL complaint here?
        Apple (like Windows, like Linux) offers you a variety of solutions:

        – buy an iMac with a 3TB internal drive, which meets many people’s needs in one package.

        – buy a Mac mini as an HTPC, stick it in a drawer under the TV, and connect a bunch of USB drives to it.

        – use an old laptop from 8 years ago with the battery or Bluetooth or dead internal drive as a server. Stick it in a closet somewhere with its USB drives.

        – buy one of a variety of NAS drives (single or RAID) and connect them to your network.

        You cannot get your story straight:
        – When Apple offers a solution that is easy to use, you complain that it doesn’t offer capabilities for power users. Then when it’s explained to you that there IS a power user solution, you complain that it’s not easy to use.

        – Similarly you complain that Apple expected people to spend huge amounts of money to do anything, but your answer to this problem is a $700 NAS RAID solution when I have the same effective thing at home for FREE based on gluing together a bunch of old USB drives via Apple SW RAID, all hooked up to an old Macbook. Use striping for bandwidth, concat a small 64GB SSD from about three years ago at the beginning of the volume to give an SSD metadata zone of HFS+, and you have a pretty incredibly fast pool of storage.

      • obarthelemy

        Well, it’s been hammered onto me again and again that aesthetics are important for Apple buyers, so I’m taking that into account ? Are you saying they are when convenient to compare vs others, but aren’t when they get in the way ?

        Only 27″ iMacs accept a 3TB drive. And they sell it for 50% more than normal prices. And a desktop is not really specced / positionned to be a 24×7 server.

        Mac Mini + bunch of USB drive is probably the least worse setup. Expensive and messy though.

        Recycling oldies and NAS drives get into the “complicated” zone. And messy, in the case of recycling.

        I’m glad you can glue together a server for nothing. Mine set me back that much mostly because of the 4x 3TB drives (6TB, x 2 for backup), and an upscale PSU. iTunes users can probably eschew backups (iTunes is that), and 3.5″ disks. A 2.5″, maybe 2x, “iTunes cache + Time machine server”, ARM-Based, should be enough, can be one-button setup, and cost a fraction of that.

      • stevesup

        Better off not feeding this commenter. He fudges absolutely every issue.

      • Walt French

        obarthelemy wrote, “Why would I buy iTunes media if I can’t play it on my hifi/TV ?”

        Is it so different in France? Over here iTunes music — the stuff that’s supposedly so hard to play over your hifi— has been sold without DRM for several years. 2007, methinks.

        Yes, by default it’s in the AAC format that Fraunhofer designed as a superior alternative to MP3. Despite its technical superiority to MP3, and the fact that it’s used as part of many other standards, it is little-loved among people who think it’s Apple-proprietary because Apple promoted it.

        IF the French iTunes Music Store is DRM’d or otherwise restricted, you can be pretty sure that it’s due to the copyright holders in France exercising their rights more stringently than they do in this country. Apple long ago went on the record as calling for DRM-free music. In any case, iTunes lets one convert music to any other format so it’s as compatible as you could wish.

        (In my case, i use iTunes mostly for a jukebox; I have a stack of CDs in the basement as my originals. Every now and then I’ll re-rip a track from when disk space was expensive. The overall ecosystem works great that way.)

        Since your comment looks like regurgitating old gripes that don’t have any truth to them today, it’d be fair to call it trolling. It’s absolutely the purpose of this site to try to help others understand the full range of the markets around Apple and new media; it’s absolutely a disservice to spew out rotten baloney merely to provide a counterbalance to some thoughtful analysis that shows Apple doing quite well.

        “I think until local storage and TV/hifi compatibility are solved (cheaply+easily), iTunes/PlayStore media will be seen as mainly mobile / one-use media, and sales will suffer accordingly.”

        So, since local storage is a non-issue (my iTunes library fits onto my iPod’s 160? GB disk and is backed up onto my NAS) and compatibility is a non-issue (it plugs into the same system I use to pipe our Sirius service around the house) are both solved cheaply/easily, does that mean that iTunes sales will continue to do very well?

      • obarthelemy

        or rather, continue to do not very well, as is the subject of this blog post. I’m glad you have Sirius (whatever that is), most people don’t, and have hifis that are neither iTunes- nor Airplay-enabled. I guess they can burn a CD or use the mini-jack port… or bluetooth ! That sure makes for good sound and lots of convenience…

      • Kizedek

        Well, don’t know which article you read: the take-away was that it would be expected to be worse, and therefore is quite good. Horace makes this point in the podcast. When the user-base doubled, the ARPU went down about 10%. That’s a nice problem that many companies would love to have.

      • Walt French

        You alleged that music one buys from Apple is somehow isolated into the Apple product line. But bought-thru-iTunes music is perfectly as transportable as music from any other PC- or smartphone-targeted music. You simply need a physical connection (e.g., plugging one’s iPod or PC into the hifi) or some wifi-, bluetooth- or ethernet-based solution.

        Just as with music purchased from Play, Amazon or anybody else.

        Bad faith in your posting that you didn’t reply to my actual point, which is that you’re making up artificial restrictions when you’re calling out iTunes as isolated/inconvenient.

      • obarthelemy

        I’m still alleging it:
        – sharing via bluetooth of the mini-jack is bad quality,
        – sharing via iTunes/AirPlay requires iTunes/AirPlay-compatible TVs and Hifis
        – sharing via a dock requires proprietary docks
        – sharing via industry standard means (LAN, dlna) is only supported via 3rd-party usually for-pay, add-ons.

        Pretending the contrary is “bad faith” (sic).

        Compare to Android, were almost all devices, especially on the high-end, support
        – industry-standard dlna,
        – industry standard HDMI digital out (via MHL or mini-HDMI port)
        – wifi LAN access inound, not so much outbound),

        LAN and dlna especially, are always available, usually as a built-in feature, if not, with a free App. HDMI and MHL depend on hardware. most have it, but t bears double checking.

      • Tatil_S

        “Music / entertainment is a consumer good that isn’t likely to grow any faster than consumer incomes.”
        I disagree. Discretionary part of income grows faster than overall income, as the “absolutely necessary” expenditures (food, rent etc.) start taking up smaller percentage of incomes. For example, people can easily triple their spending on cars or vacations without waiting for their salaries to triple, once their income level is comfortably above rent and food costs. Students can start buying songs rather than downloading them from torrents, soon after they get well paying jobs. (Their time becomes more valuable as well.) Similarly, smartphones started reaching a large number of people who are just going through the process of becoming middle income in many parts of the world.

      • Walt French

        Individuals have, over the past 25 years, dramatically expanded the share of their income going to entertainment. First radios and movies, then TVs. But our entertainment dollars are increasingly going to cable subscriptions, smartphones and videogames. Rock was the defining anthem of the 60s and 70s and music consumed a huge share of boomers’ entertainment budget; today, recorded music is a small and decreasing share of my entertainment budget that includes live opera, ballet, theater and so much more.

        Regards the mix: you, as an individual, will spend more on life’s little luxuries as you become more well-off. But as the older generation is replaced by younger, lower-income people, you are replaced by individuals who have less to spend. Perhaps you’ve noticed the statistics that the huge majority of Americans are little better off, in terms of inflation-adjusted income per household, than we were decades ago.

        From both effects, spending on music is crowded out by our other little luxuries. Easy to see: it’s hard to find a stereo in Best Buy; the place is instead full of games, TVs and PCs. Of course, music will always have resonance with people, but it’s hard to see it in the same definitional role that it had 50 years ago.

        Ever since the (flop) ROKR, Apple has realized that music was no longer important enough to build its business on; sure enough, smart devices have all but replaced MP3 players, across the globe.

  • RobDK

    Top notch, Horace, along with your previous iTunes article.

    What many do not realize is that iTunes global reach for the delivery of content is so much larger and wider than competitors. See the following link, which puts things in perspective:

    It shows iTunes globally is head and shoulders ahead of the competition, and shows the Apple’s strategic advantage in this area. An advantage they have 5-10 years lead in!

    • obarthelemy

      These maps are plain false.

      • burdenedproof

        Are you going to elaborate or do you consider this sufficient?

  • echotoall

    Guven the success makes one wonder why Apple has not yet allowed a true 3rd party app ecosystem for AppleTV.

    • obarthelemy

      iOS is not well equipped to handle non-touch devices, nor varying screen resolutions. That would mean several other App variants: non-touch 720p, non-touch 1080p, maybe non-touch 480p…
      Apple are probably loath to become more fragmented, or update their apps framework a la Android.

      • Kizedek

        Your spin on things is astounding. “Update their apps framework a la Android”? It’s Android and Windows 8 that have a thin veneer of touch framework superimposed on a traditional framework. We could say that Android and Windows are not well equipped to handle Touch devices, lol.

        Resolution isn’t an issue. iOS has been mirroring to TVs for over a year (iOS 5) through AppleTV or Airplay. The iPad at 2048-by-1536 pixels sounds greater than 1080p to me and the Apple TV provides the scaling.

        Why is non-touch an issue anyway? You wouldn’t want a mouse dangling off your TV any more than you would go up and touch your TV screen. Your iPod, iPhone or iPad would be the controller. iOS is perhaps the ONLY OS well-equipped to handle output of apps to a TV — it’s happening now! How would Android handle this, get installed on the TV itself? Oh yeah, Google has tried something like this; I think Apple’s hobby has already been more of a hit (though it is still a bit of a secret, so I am not surprised you are not up to speed).

        Apps for the TV will come; Apple is just waiting for something.

      • obarthelemy

        First issue is not about Touch, it’s about handling different resolutions/DPIs/screen layouts from a single codebase. Read up on it: Android provides infrastructure for apps to handle that from a single codebase, iOS doesn’t (apps had to be tweaked to take advantage of the iP5’s larger screen…). And those *are* an issue on several levels (jaggies, position and size of interface elements, general screen layout…)
        Also, scaling is never as good as native, both for text and graphics.
        Non-touch is an issue because if you don’t have touch, you’ve got to have something else: keyboard, mouse, gamepad, remote. To my knowledge, iOS doesn’t handle all (any ?) of that completely; Android does in a relatively transparent way, so most apps work on the “desktop” android devices with a keyboard+mouse+gamepad+remote, except about half the games (which are hard-coded for a portrait screen, need a gyroscope, insist on bluetooth, use low-level access to the touch API thus short-cut the mouse touch emulation, get confused…).
        There are a lot more possibilities than a mouse to control a pointer: touchpads, D-pads, gyroscopic remotes… even straight keyboards and gamepads can work for that. No need for a $400 tablet to control a $40 Android PC, there are a whole lot of $10-$20 keyboards and remotes made especially for that.

      • Kizedek

        I replied to another comment of yours mentioning resolution below. It’s not as big an issue as you think. Scaling is happening now between different Android devices — developers don’t provide native res graphics for every conceivable possibility.

        Apple has decided, for the moment, to use the native method and have developers provide hi res graphics or diff layouts and UI depending on device. This is great — a diff device or orientation of the device can get a diff layout or UI.

        I mention scaling because video output is always scaled. No worries there. If apps are scaled and show jaggies, and if this becomes an issue on TV, then Apple may well do something about it when it targets the TV with apps of its own.

        As far as non-Touch issue: If Apple is intending to sell the Apple TV as a console with full app capability in its own right, stand-alone, to users that have no iOS device, then they will solve the issue. Yes, “to your knowledge” they haven’t done so yet; however, Apple has had a small remote for about 19 bucks for years, for presentations and controlling media viewing on the Mac.

        Furthermore, iOS apps can indeed accept varied kinds of input (such as through wireless keyboard). Somehow, I think Apple can make a little bit of hardware easier than Google and others can fix their TV interface nightmares 😉

      • obarthelemy

        I give up. You’re wrong on almost all points.

      • Kizedek

        Well, handling different screen sizes isn’t all there is to it. It’s not just about repositioning or re-rendering or re-proportioning all the UI elements. It’s about making choices about how the UI is presented and used on diff devices and in different orientations.

      • obarthelemy

        which TV interface nightmares ? the ones that have been fixed for ages, and several times over ?
        yep. supporting devices on MacOS means they are supported on iOS too…
        “video output is always scaled”… sure….

      • Kizedek

        The interface nightmares that show no-one has “cracked it” yet, the ones that make the oh-so-successful Google TV no more desirable than the cable box interfaces of the last thirty years that require a controller with a hundred buttons, that kind of nightmare.

        Yes, I should have said, “video output is always SCALEABLE, and that is acceptable.” Of course, if you have HD content (and even cable “HD” content rarely is worthy of the name due to the excessive compression applied) and you display that HD content on an HD device there should be no scaling involved. Otherwise, scaling up and down frequently occurs — whether it is fitting HD content on a phone, or playing SD content on an HD TV.

      • lmngtfy

        “First issue is not about Touch, it’s about handling different resolutions/DPIs/screen layouts from a single codebase. Read up on it: Android provides infrastructure for apps to handle that from a single codebase, iOS doesn’t”

        You might want to google “iOS auto layout”

      • obarthelemy

        Hey thanks, I didn’t know about that one. I’ll double-check it. Don’t tell Kizedeck though, he’d probably stop buying apps.

      • Kizedek

        I merely said, resolution isn’t the big issue for iOS developers you seem to think it is. I was well aware there are tools in the developers kit to simplify and streamline the process, while at the same time developers can craft the exact UI they want for each device and orientation, in *native resolution*, because they are encouraged to upload separate graphics at specific sizes for the limited number of devices that supposedly represent some kind of horrifying, growing and unforseen “fragmentation” issue for Apple. I really don’t know what your problem is.

        I know exactly what I am getting in each app I purchase because I check the screenshots and read reviews.

    • anonymous_coward12

      what about airplay?

      apple TV is only 8GB and lots of that is used for caching.

    • They could have done this a long time ago with success.

      Obviously, they are waiting for a reason. I can think of some technologies that would be paramount going forward, that are just about ready for market.

      Firstly UltraHD 3840×2160 which is literally like going from an iPad to an iPad retina for television users, already there are 50″ television sets with 4K UHD for $1200-1500 on the market. This is exactly what Apple wants in the living room, Ultra HD.

      As the data-rate increase a great deal with UHD, they depend on new encoders to help with that. h.265 encoding promises to double the compression over h264. This is a huge stepping stone in realizing UHD delivery. It´s right around the corner, and will allow for much better quality/streaming.

      If I was Apple, I would want to gather up as much ammo as possible before I released a new “Apple TV”. Third-party apps, UltraHD, H265, better GPU performance, content deals. And by doing so, I´m more likely to “wow” consumers at launch, and prohibit the likes of Google/Samsung of quickly catching up, giving me a nice head-start in the market.

      Third-party app makers need a solid interface to deal with an TV, and that is the missing link right now. No point in allowing app developers to start making apps for TVs unless they know exactly how people will interface with them. I´m sure the “interface” is the problem Steve Jobs described as “cracked” to Walter. We´ll see it in due time.

  • handleym

    “Talent is catching on to this faster than those who manage and distribute their work. The inevitable result will be a mass migration of talent away from the established content industries. Old media won’t fade due to a loss of users. It will fade due to a loss of talent.

    I’m sorry, Horace, but this is nonsense.
    There is SOME talent (on the business side, perhaps in some art areas) which is relevant to both the movie/TV world, but most is not. If my skills are that I have a beautiful face, or a fine sense of comic timing, or I can write a great script, that’s not going to get me far in the app world.

    The point that people may spend less time watching TV and more playing games is legit. The point that TV as a business may change completely is legit. But the point I have quoted is nonsense.
    To give one example — yes, old time radio dramas went away. But voice talent lingered on, for a long time just doing cartoon work, but has now made a MAJOR comeback for a very different business model, doing audiobooks.

    It is conceivable that the mechanism in 2020 for distributing my blockbuster new TV series “Game of Chutes and Ladders” is via an app, which streams the content from special servers, using special protocols and crypto, and with no non-proprietary delivery mechanisms (eg DVDs, h264 streams, RTSP) via which “pirates” can capture the content. (cf delivering magazines as apps today).
    But that does not seriously make the TV talent tech employees, any more than they are tech employees because today hi-tech cameras, and SW, and workstations are used to create TV episodes.

    • Jamie

      I took the quote to reinforce Horace’s long held view of the app “supernova.” Once Apple cracks the platform open for appification of large screen entertainment (and gaming), I think that 2020 target date moves much, much closer.

    • interpretation

      Took this to mean a migration away from distributions networks, which you’re agreeing with in your comment.

    • Apple is making a new marketplace for talent to find its way without the “backend” business people. Obviously, there is a ton of unpaid talents on the internet today. These people will come in large numbers, and they will find new ways to generate income through iTunes.

      Also established artists are finding it more profitable to go their own “route” per se. Take a look at Louis C.K for instances, he made a great deal of money by by-passing all regular channels, and instead launching his own video by himself – the end result was very successful. There will be much more of this going forward in all areas: game development, authoring, film-making, music creation, etc

      iTunes as a platform is unique in the way it allows talent to find a market without all the normal hurdles like initial investment, marketing, etc. Anyone can enter and reach millions of people easily. More than ever talent will be the deciding factor for success.

      • handleym

        Appropos of this, we’d all do well to read Jaron Lanier on this subject:

        Personally I share his pessimism on this issue…

      • There are differences in what innovations enable and disable. Disruptive innovations create jobs and consume capital. Sustaining innovations are neutral on both counts. Innovations that focus on efficiency (typically they build beyond what markets are willing to absorb) destroy jobs and throw off capital. ‘Innovation efficient’ economies recycle efficiency gains into disruptions, using excess capital and labor. “Innovation inefficient” economies hoard capital and expel jobs. It has little to do with the inherent value of a particular technology and mostly to do with resource allocation decisions based on structural and cultural barriers to disruption.

      • obarthelemy

        “Disintermediation” was already a buzzword back when I was a student in the 90s.

        It’s true from a logistics point of view, especially for digital goods. Management and marketing are thornier though, and, broadly speaking, there’s still a need for an accountant, a strategist and a seller between the maker and the buyer. Online shops go from “not even trying’ (strategy, accounting) to very bad (marketing). There’s still an need for… dare I say it, producers and publishers.

    • JaneDoe12

      If my skills are that I have a beautiful face, or a fine sense of comic timing, or I can write a great script, that’s not going to get me far in the app world.

      What about this as a way into apps? A dance choreographer produces a 5-minute YouTube video that gets 80 million hits. If Google were to pay 1¢ per hit for the content, do you think that would that lure talent away from old media?

      Here’s the video: Jill & Kevin’s wedding entrance dance. She choreographed the dance. There was one 1.5 hour rehearsal.

      • obarthelemy

        Is this an app ?

      • JaneDoe12

        There is a YouTube app, and the video runs under the app. That’s how I think of this. Is that wrong?

      • obarthelemy

        ab absurdum:

        So all movies and music and books and comics are apps, because you view them with an app ?

        Oh, and making phone calls too ?:

      • JaneDoe12

        No, they’re not apps. And the video in my example is not an app — it’s an input file for YouTube. In my reply to handleym, I equated it to an app because if Hollywood produced a YouTube video, it would give them an entry into the app world. They wouldn’t have to produce a full-blown video app. The video played by YouTube would be equivalent.

  • oases

    Musicians are addicted to record labels. I keep looking to see if they’re disintermediating but there’s very little sign of it. May still happen but how soon is now?

    • Musicians? All musicians? I reckon there are 100 musicians who are not signed for every one who is. Are those 100 unsigned musicians addicted to record labels? Some, I would think, earn money performing

      • oases

        I’m talking about their reluctance to sell their music in apps.

      • oases

        I’m talking about their reluctance to sell their music in apps.

  • Walt French

    Any update on Jobs’s famous, “nobody reads books” dictum? The data above shows the average account buys only about one-third of a $10 book per year, but surely that’s zero for the vast majority and a large number for a very few.

    It’d also be interesting to see how Apple is doing in that just as an indication of what fraction of Kindle sales go against the people who are happy with a B/W reader, versus Amazon being more successful in a broader mix of media. Amazon gets most of MY media dollars but as Mr. Gobert opines, I might be an outlier.

    • I have been thinking about this myself. The answer depends on the state of “literacy” or the preference for reading vs. other media. I have the impression that literacy has been endangered for many decades but haven’t seen much data (perhaps Pew studies cover this.)

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  • pxldot

    Not sure I understand measuring software revenues on a per-account basis. Per my understanding, software being broken out from “apps” would mean that software includes all of the OS updates and Apple’s professional (Aperture, Logic) and Consumer (iLife) applications. Prior to the introduction of the Mac App Store (late 2010), there would be no way to tie such purchases to an iTunes account. Apples and oranges, no?

    • obarthelemy

      1- You want to measure it per what then ?

      2- I’m not sure what your issue is ? What does it matter when “software” (as opposed to “apps”) can’t be logistically tied to a specific account ? I’m fairly sure all Apple users have an iTunes account anyway, so whether Apple software is bought via that account or directly… It’s still “software” money that ends up in Apple’s pocket ? I’m assuming it evens stays in the same category in Apple’s accounting, and that all Mac software = “software”, and all iOS software = “apps” ?

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  • Busy Bee

    “Unfortunately that acronym is taken.”
    Hey, acronyms are a finite resource, so the maxim applies: reduce, reuse, recycle!

  • Morgan

    “TV producers can only hope for millions” – Not sure how this argument looks when video is delivered primarily via apps, streamed to your big screen. Surely then video producers can also hope for billions?

    • Kizedek

      Depends on the model and the content. One big free-for-all with ads, like YouTube, and it could get billions of users. But I think the potential is for quality content targeted to those who really want to see it. I think Horace has mentioned this…

      An app could basically be one TV series alone. It could have a cost, or an in-app purchase per episode like a magazine. The only ones buying it would be those who really want to watch it; and specialized content would have limited audiences. Millions or much less. A way could be found to fund new specialized quality content, maybe by buying an app in advance, like a “KickStart” (I think this was tried for an Australian series). But the appeal of such content would never be in the billions (but that’s the beauty of it).

      There are very few TV series that would garner billions of viewers, let alone Networks/Broadcasters that would consistently garner billions of viewers of all languages around the world. Maybe the BBC (*everyone* watches the BBC). I would pay for the BBC iPlayer but few other Broadcast apps. And TV Series apps? Billions of people might watch Top Gear or CSI and a couple of others, but few series would get a worldwide following.

      • Morgan

        It seems to me that something similar could be said for apps in general. A potential marketplace of billions, but few make it that far. Most will find a small (and hopefully profitable) niche.

        The point about language is interesting. My hunch is that a broadly appealing app is slightly easier to translate into different languages, and leaves no residue of its cultural origin. There is no similarly clean option for translating video. Here, apps reach further.

        Of course, if video becomes a subgenre of apps, the division blurs, and the comparison is amongst different kinds of apps.

      • Kizedek

        Right, something similar could be said of apps in general.

        RIght now video isn’t addressing the potential billions, even where it is delivered as an app. The BBC’s iPlayer isn’t useable outside the UK; and US Network Apps aren’t useable outside the US. When they are, they will have the potential market of billions, just as other apps… but, realistically, they won’t match an app like Angry Birds due to cultural relevance and language.

        However, the BBC’s TV producers could “hope for” a greater audience than the 60 million population of UK, and can realistically expect hundreds of millions of international users.

        [The BBC has no adverts; rather, it is funded by a “TV License” paid by UK residents (maybe £100 per year or so). Since there is live streaming involved, then I guess they use their own servers, not Apple’s, to deliver video. If they could sort out their servers to handle 10X the traffic they get now, then you would think they would jump on the chance to charge a little bit for access to different bits of programming from outside the UK. Although, I guess they have given some assurances to local cable providers around the world.]

  • Jonorom

    Your last Critical Path suggested a cost of ownership of Apple hardware of $1/day. You suggested we assume 1.5 devices per user and add the iTunes revenue per user. Unless my math is wrong, for 500M accounts (users?) that is about $300B per year flowing to Apple, so there is a discrepancy.
    Any thoughts about that?

    • I would not suggest 1.5 devices per iTunes account. The number of devices per iTunes account is not known. The multiplier for revenue should be built bottom-up from the number of Mac, iPhone, iPods and iPads in use. Unfortunately those are not known either but they are easier to estimate.

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