iTunes may not be ran at breakeven anymore

Shane McGlaun - Mar 25, 2013
iTunes may not be ran at breakeven anymore

It’s hard to believe that Apple’s incredibly popular iTunes Store has been around for 10 years as of next month. When Apple first launched iTunes, the technology company announced that it wanted to run the store at breakeven. During the early days of digital content when people weren’t used to purchasing music and other items as digital files, running at a breakeven was an understandable goal.

Today with consumers all around the world devouring digital content, some analysts believe that there is room in Apple’s plans for some profit. The graphic above shows how significantly iTunes revenues have grown between 2005 and the end of 2012. ITunes has quintupled in revenue in seven years. Asymco believes that while iTunes has grown massively content sales is likely to have been preserved at a ratio of about 30% of the transaction volume.

There was an estimated 23 billion item transactions in 2012 via iTunes. According to the analytics firm, it believes operating costs for iTunes are spread more evenly and that the possibility exists for some operating margin. The company believes that breakeven costs of operating the iTunes stores is about $3.75 billion.

There is a suggestion that since 2010 iTunes has run at a little over breakeven amount. Exactly how much over breakeven is unknown, however Asymco makes some guesses. The company figures that there could be 2% operating margin on apps and 1% on music. That doesn’t sound like much, but when you consider the massive amount of revenue generated by iTunes the profit margin on content could be as much as $150 million. That’s not all though because Apple’s software division also make some significant money via iTunes. Asymco estimates that Apple’s own software has generated as much is $3.6 billion in revenue in 2012 alone. The operating margin on that amount is estimated to be over $2 billion a year. That is certainly much better than breakeven, if accurate.

[via Asymco]

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