Apple is finally making money on content

Apple is finally making money on content

By Christopher Mims — 11 hours ago


A few percent of a huge volume of transactions is a tried and true business model.Asymco

Apple has long said that it wants to run its its app and media stores at break-even, but the volume of transactions on iTunes has become so huge (check out the graph, above) that even at a tiny margin, Apple appears to be making a substantial profit on content. This data comes from mobile analyst Horace Dediu. Here’s his breakdown of Apple’s profits on bits, not atoms:

  • Apple’s iTunes revenue has quintupled in the past seven years. (Mind you, its overall revenue has quintupled in just the last four.)
  • 23 billion items were sold sold through iTunes in 2012.
  • At a hypothetical (and not unlikely) margin for Apple of 2% on apps and 1% on music, Apple could be making $150 million a year on content alone.
  • Throw in Apple’s software business (it’s easy to forget that Apple also makes its own, from Pages and OS X to Final Cut Pro) which is now sold entirely through the company’s desktop and mobile app stores, and Dediu estimates 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.”

Now, next to a net income of over $40 billion in 2012, that’s still hardly game-changing. But it appears that the well-worn trope—that Apple is a hardware company that practically gives away everything else—is no longer true.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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