Cost of running iTunes estimated at $75 million/month

Sun, Sep 12, 2010

Finance, News

Apple has for sometime stated that it doesn’t generate significant profits from the iTunes Store and that it is, for all practical purposes, a break even venture. That notwithstanding, the addition of apps into iTunes has led to an enormous increase in the total number and bandwidth of downloads from iTunes. So while Apple may still be breaking even, the costs of operating the iTunes Store in its entirety seems to be on the rise.

Asymco recently broke down some of the financials associated with iTunes and arrived at a number of interesting figures. First up is how much Apple takes in from app and music sales on a monthly basis. Apple has stated before that the average selling price of an app on iTunes is about $0.29, of which Apple receives 30%. Meanwhile it’s been estimated that Apple enjoys about 10% margins on songs sold on iTunes.

This shows that what is left after paying the content license, Apple “keeps” about $50 million every month to run the App store (iTAS) and another $30 million to run the Music store (iTMS).

But it’s not just about how much Apple takes in, it’s about how much it’s spending to keep iTunes up and running.

But the operating budget for the store is beginning to reach a level that may be beyond what can be spent reasonably. The amount left over for operations has increased from ~$30 million a month in 2009 to $75 million/month today.

In fact, if this burn rate is maintained (even though it’s increasing) the operating budget for iTunes is nearing $1 billion/yr.

Lastly, and especially appropriate given Google’s intent on getting into the music selling business, Asymco notes that the steep financial requirements of operating a venture as large as iTunes provides “a significant barrier to entry for any competitors looking to take on the iTunes juggernaut.”

iTunes has reached content critical mass (12 million songs), user base (160 million users) and wide distribution (23 countries for songs and 80+ countries for apps).



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