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Apple Now Making Serious Bank From iTunes, Ya Heard

Written by Marc Zanotti on March 26, 2013

Apple is rolling in the Benjamins thanks to sales from iTunes, which was originally designed to be a “break-even” business in support of profit-making hardware such iPods, according to an upcoming report.

The report, from financial analysts Asymco, has estimated that Apple could be making over $2 billion a year in gross revenue now that Apple Software such as iWork and iLife can be purchased via iTunes. Asymco’s iTunes Business Review notes that in the 10 years since its inception, iTunes has shifted from ‘break-even’ to ‘a little over break-even’ based on revenue increasing faster than the cost of the addition of media types.

iTunes Business Review author Horace Dediu notes that iTunes has quintupled in 7 years “with an estimated 23 billion item transactions in 2012 alone”. An excerpt from the upcoming Asymco report details where the profits are derived from:

“My estimate is that Apple’s own software generated $3.6 billion in Revenues in 2012. As you can imagine, this is a high margin business which grows at nearly 20%/yr. Although I estimate that the software business has been overtaken by the Apps and Music businesses in gross revenues, it keeps an operating margin similar to that of Microsoft or about 50%.

This means that iTunes inclusive of Apple’s own Software generates as much as 15% operating margin on gross revenues. That’s over $2 billion a year.

So much for breaking even.”

Although music sales only account for a small portion of the profits, no doubt this news will only further irritate Australian iTunes customers who can pay up to 50% more for music than customers in the United States, although iTunes Australia yesterday claimed that was a result of Australian record label pricing practices.

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