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A Look at iTunes Store Financials
Wednesday, March 12th, 2008 at 4:00 PM - by John Martellaro
The conventional wisdom is that Apple makes almost nothing on the iTunes Store and that all its profits come from the sale of hardware. That may no longer be true, according to Billboard in its latest issue.
With some assumptions, the iTunes Store had an estimated gross profit of US$570M in 2007. Then, Ed Christman took look at expenses and made some estimates compared to a similar business, Amazon. The conclusion was that its hard to explain away a considerable amount of net profit, perhaps as much as US$390M.
"Yet, top distribution executives argue that Apple spends more on marketing the iTunes store than Amazon does. They also suggest that iTunes technology costs are higher than Amazons because all of its business has to go one extra step to provide for the download, in addition to supplying product information, placing purchases in a cart and getting credit card information," Mr. Christman wrote.
"Still, it seems that even with those higher costs, iTunes is now profitable on an operating basis," Mr. Christman concluded.
While Apple doesnt always divulge every financial detail of its operations, sometimes, with some digging and comparison to other companies, one can analyze all the numbers that are available, albeit with some assumptions, and reach a tentative conclusion. One can disagree with the assumptions and analysis, but the exercise in itself can lead others who have additional data to yet further research and refinement.
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