Done. Apple has just sold its 100-th million song on iTunes (official site here). Quite an achievement after just over a year of the service launched. At $0.99/song, this would make it a $99m revenue stream.
I would very much welcome a thorough analysis on revenue structure and cost structure for the iTunes business model. I'll put in my thoughts here:
On the revenue side, Apple gave away a while ago also 100 million songs with Pepsi... :
"The Pepsi iTunes promotion will kick-off with a Super Bowl ad on February 1, 2004, and will run until March 31, 2004." How many were actually downloaded through the PEPSI marketing campaign?
I am not aware of other marketing tricks for free downloads, although there was a reseller deal with AOL recently.
On the cost side, I understand Apple pays back $0.83/song in royalties to the major labels and around $0.60/song for independant labels. This leaves about (0.99-0.83)*80% + (0.99-0.60)*20% = $20,6m of turnover (I have no clue what the mix is between major labels and independants, I just assume a basic Paretto 80/20 law here).
The 100m counter being actually for the number of downloads, and not for the number of songs sold, a few million downloads with Pepsi (for free!) will decrease revenue. Assume Pepsi brought 20% downloads ? So a few million less on the revenue side: 20,6*(1-20%) = $16,5m turnover...
Hardly enough to pay for all that marketing campaign around the world, the software they bought and enhanced, the people & overhead... Is iTunes making money, probably not, and not soon...
On the other hand, Apple has sold over 3m iPod devices (read it somewhere in the press, 2m already back in January), with prices ranging from $249 to $499. Imagine that to be an average retail price of 40% * $249 (iPod mini) + 15% * $299 + 30% * $399 + 15% * $499 (just assuming a Gaussian distribution for iPod with a good take up for iPod minis) = $339 average price.
Now, big unknown, what is the gross margin on hardware. 50% ? => we get then $339 * 3m devices * 50% gross margin = $508m (waow !).
Assume a 30% overhead of marketing and SG&A, we get 20% of turnover, ie potentially $203,4m profit.
How much of that is subsidizing iTunes ?
There I believe this back of the enveloppe equation for breakeven analysis is easier to understand, and that Apple is indeed developping a brilliant complement strategy. And of course, all my assumptions here would require refining, etc. but you get the basics (unless my logic is completely flawed on this rainy Monday afternoon...)
