Who's NOT making money off of digital music
mannybolone
Los Angeles, CA 15,025 Posts
As some folks might have seen, there's been a big debate this past week over whether or not Apple's iTunes sales are slipping or not but a Business Week columnist parsed down Apple's own data to argue:In the end, it doesn't really matter what Apple's iTunes sales are since the company makes relatively little money off them, especially in relation to the company's overall sales sources. http://www.businessweek.com/technology/ByteOfTheApple/blog/archives/2006/12/fun_with_the_fo.html"Let's say for the sake of argument that Apple takes home 5 cents in revenue per iTunes song sold. Then lets say that it sells a billion songs in a year -- way ahead of the volume its really doing. That would equate to $50 million in revenue in a year.Does that figure seem to low to you? Then let's double the assumption to 10 cents a song for $100 million a year. Still too low? Let's double it again to 20 cents a song, and reach $200 million a year.For a company that reported $19.3 billion in sales[/b] for its last fiscal year, $200 million, which is probably too high a figure for our hypothetical "billion-song year" is just a tad more than 1% of fiscal 2006 sales. A hypothetical $100 million amounts to about one-half of one percent of sales. Any smaller than that and you end up in rounding-error territory, or as the accountants like to say, "not meaningful."This is the dirty little secret about the iTunes Store: As good as it is, it makes Apple very little money. It is, for all intents and purposes, a marketing tool for the iPod profit machine. In fiscal 2006 Apple moved 39 million iPods for about $7.7 billion in revenue, and in my estimation about $3 billion and change in gross profit.TV shows and movies may change that, but not until Apple is selling not merely many millions of downloads per year, but many billions of downloads per year.Let's go back to the midpoint of my hypothetical scenario and assume Apple takes home a dime a download, and then assume Apple were to sell 10 billion songs in a year: That would equate to a cool $1 billion in revenue or about 5% of fiscal 2006 sales. But ten billion songs a year is a lot: That's more than 19,000 songs a minute, or 27.4 million songs per day."This might be old news to others but I found it pretty fascinating. iTunes, esssentially, exists to drive iPod sales, not vice versa.
Comments
That's not the point of the article actually. iTunes isn't making a lot of money but someone's taking the lion's share of digital music sales and it's the record labels. Even if their end is only 50 cents (and most likely, it's higher than that), we're not talking chump change.
O, it's not the lions share that the labels are taking. At least not if you are a small label trying to get into digital distribution. It's the intermediary companies who "bundle" labels for Itunes. Ever tried to deal with itunes directly with your own small label? Forget it, at least over here. They don't even talk to you. You need an intermediary and thats where most of the money ends up. Only already established artists have the power to cut a deal and walk away with the lions share (say, eg. 90%), all others can "be glad" to be a part of the system. 50 cents for an 99cent track for the label? Who on here has a label that gets this money? I never heard of that. Most likely you can be glad if you end up with 18-20 cents. That's the reality, at least in my private mindgarden. Besides the fact, that there are not enough people who pay for online music. So, I'd say, most labels are Not making any money (at least compared to what they should get) off of digital music.
Word - thanks for the breakdown.
I wonder if there's somewhere that has more transparency as to how that "99 cents" breaks down? You'd think someone would have sussed out the actual numbers on this already. Let me dig around.
Can we look forward to rappers no longer bragging about "8 dollars per record!" and yelling "32 cents a download!"?
Doesn't quite have the same ring to it.
We'll see what Jim Jones has to say about it.
Don't know about that, but my friend, without a label, has his stuff for sale on iTunes and said he got it up there real easy. Now, he may not be making much money off of it though, but I'll ask him and see what's up.
it might be true that things changed, but at least the level of money you get as a label is suboptimal to say the least. Let's not even start to talk about artists...
I work in digital music and downloads. In the UK and North America the majors are taking very nice cuts on downloads. 75% and upwards. The download sites themselves are taking very small cuts off the top and only make cash on volumes - per track we're talking 15 cents maybe. Plus they pay the labels shitloads for access to the tunes in the first place.
The question is: are the majors banking good money under this arrangement based on volume of sales?
I don't think there's much reality in this statement, or at least none that I've experienced in our iTunes deal.
1) Getting our deal was relatively easy. We went intermediary style for 3 months and then approached their label manager at SXSW about going direct. We gave him a package of our first eight discs, made a few calls, and by May the ink was dry. Their biggest concern was how many songs we had, not albums. If you've got a lot of unreleased or out of print catalog, they're going to be interested.
2) Even when we were with intermediary, we were making 56 cents per download. Most of these companies charge about 15% of total revenue generated, though some have retarded "ripping" fees, which is a scam. Any business person worth their salt can negotiate out of this, so don't get roped in that way. In our new deal we make 70 cents per download, this is what the majors are making as well.
3) We make about 5% of our total monthly revenue through iTunes. That's not a ton, but it's nice to see it pop up in your account every month. People are paying for music, but it's the responsibility of the artist and labels to make music people want to buy.
Well, I've experienced otherwise, but that was some time ago, so again, things may have changed. But I am living in a country which is - speaking of statistics - one of THE countries in the world with the highest number of illegal downloads. So far I never knew it was possible to access Itunes directly without an intermediary. Thanks for the info. Some things might be moving...and again, this being such a young market without benchmarks, there might be different scenarios from country to country. I just hope that there will be more in this for the future...
Apple. well, they are not making money off the downloads that is. heres why...
consider the amount of ipods sold in total worldwide. (according to wiki 67000000, yeah i know, its wiki, but bear with me, im illustrating a point)
now take an educated guess at the total combined storage capacity for all those ipods... lets ssay that the average ipod has 30 gigs capacity, so 67 million times 30 equals 2010 000000 gigabytes.
now, how many songs would it take to fill that capacity? even splitting the total number in half allowing for ripping, hell, lets half it again just to allow for some piracy...
now lets look at how many songs itunes has sold...
you see where im going?
Apple could give a fuck about itunes, i know its important to a lot of people, but not to the company that owns it.
all itunes is is a promotional tool to sell ipods.
i hope that little spiel made sense, one day ill get the actual figures and work it out for real... but you see my point right?
right?
Yeah, I mean, I said the same thing in my original post: iTunes exists to sell iPods, not the other way around.
And so far, that's worked out QUITE nicely for Apple.
oh yes indeedy...
and yeah, i read the above posts, i just love that spiel,,,
fukin Apple at 90 and MSFT at 29
whodathunk back in '99
lol