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It's great that Apple migrated iTunes to the clearly superior and much beloved Windows platform, but if you thought Steve Jobs will make more money from iTunes with the Win world you'd be wrong.

Turns out that Apple doesn't make any money from iTunes. Where does the money go? Why the RIAA, of course. Jobs just wants to sell more iPods.

(This just in: Wal-Mart plans its own iTunes-type store. Wonder how Wal-Mart will negotiate with the RIAA? BTW, I always thought that Amazon would be the first retail site to go this route.)

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  1. mork: me too

  2. The article sounds very dubious to me. Apple keeps somewhere around 25? from every sale, so the idea that they are losing money on the deal is doubtful (it’s certainly a much higher markup than in a retail music store). The rest of the money doesn’t go to the “RIAA”, it goes to whatever label owns the rights to the recording, just like a CD sale in a store. Who does the author think should be paid? The label then pays the artist in accordance with whatever contract the artist has with them.

    In fact, very soon (if not already) iTunes will start carrying music from independant labels, which have no RIAA connection at all.

  3. I get the weird error as well.

  4. Has anyone checked out the “new” napster?
    How does it compare?

  5. bennet:

    The “because it’s bigger” argument doesn’t wash, or excuse Windows. With a similar market share, Macs would have far fewer worms, trojans, and virii, because its security model is far superior to Windows. It’s not flawless, by any stretch of the imagination, but it’s just not rock stupid like Microsoft products.

    Citizen:

    You may have a worm on your box and not even know it. You’re particularly vulnerable if you use an always-on broadband connection. Lots of Windows worms don’t need action on the user’s part.

    R.C. Dean:

    Buisiness 101: A profit returns values to shareholders, not marketshare. Pets.com had a huge share of the online pet food market. Dominant, in fact. Where are they now? Gone.

    Micron used to have a bigger marketshare than Apple (IIRC), and yet they are no more.

    BMW could also sell to a broader market but choose not to. Want to fire their board? How about Porche? Audi? Should they sell Corolla knock-offs?

    Hank Kingsley:

    I agree, this is a bit sloppy. It’s reporting from Apple’s analyst meeting, in which Jobs said he hopes to break even or make a little money off iTMS, but that the point of it was to sell hardware. Sure, the biggest share of the money goes to the recording companies, but that doesn’t mean that with enough volume, Apple will either break even or show a profit. As long as the per-transaction cost is less than $0.25 at their average volume, they should be fine.

    Ahh, it’s good to see a return of the “Beleaguered Apple is dying” story.

  6. Sandy – I know the difference between marketshare, profit, and long-term viability. The statement above made it sound as if Apple was turning down business opportunities in order to pursue a quixotic vision of gadget-geekery.

    I have been utterly unimpressed with Apple’s management for over a decade now, and I have the impression that they run the company so they have a fun place to work and cool people to hang out with, not to make money for their shareholders.

    Remember, at one time Apple was poised to clean both IBM and MS’s clock, and pissed away what may have been the greatest business opportunity in history due to a bad case of “not invented here.”

  7. RC,
    I think you are correct. Most companies do sell hardware at cost or at a loss in order to sell software later (Xbox is a perfect example). Printer companies do the same thing. But I think Apple’s technological strength has been gadgets. The music download industry is probably going to become ultra competitive and I’m not sure it is something I would want to be in. What I am saying is that maybe the big picture is that this will familiarize users with Apple and thus make them more likely to buy an iMac or whatever for their next computer. Of course, given Apple’s past business success, perhaps I should worry that I find myself supporting one of their moves πŸ˜‰ Maybe soon I will have to change my URL to http://www.outofbusinesspundit.com

  8. Yet another example of how this place has gone down the tubes since Virginia left. Is the point of H and R to gratuitously insult your readership?

    Anyone in corporate america knows what a disaster the Windows monoculture has been and what a huge cost sink the never-ending stream of Virii, worms, and OS patches has been. And anyone who believes that “being careful” is enough to protect against internet worms is probably hosting a whole slew of them.

    The nice thing about using a Mac is I can actually have my computer hooked up directly to the net without worrying about becoming a spam hosting machine by a remote-control hacker.

  9. “Being careful” means to me: investing money in a quality virus detection program, making sure virus definitions are up to date, using a custom configured firewall, not using always on broadband, not using outlook, keeping tabs on who is on my network, etc. Am I unhackable? No, but I suppose no system is. Maybe I should get a dog to stand guard in case a burgler breaks in and dumps a virus off of a disk. Matthew and Sandy, you assume too much. Apples will always be around, but always as an oddity, a “Huh, that’s interesting.” Like the use of the wankel engine.

  10. *outofbusinesspundit* LOL, beautiful! πŸ™‚

    That Apple has missed so many opportunities and still survives well hints at the power of cool gadgets, or maybe even an occasional good business decision. If you agree with Apple when they’re being smart, you’ll endure, too.

    All the kids who used macs in school in the 90s are now in position to start spending their own money. Keeping the cool brand fresh, by attaching it to personalized music distribution, seems like a good move. If downloading gets more competitve (cheaper), that likely means more iPods sold and/or more pennies to Apple, if not for each iTMS transaction, then to service as a whole.

  11. I enjoy investing my time and money in software that does useful things for me instead of worrying about firewall configurations, anti-virus programs (that often hamper useful computing tasks), registry rot, reinstalling windows, and other miscellanea of Windows ownership.

    Given the huge expenses that corporations are spending dealing with the insecurity of windows, the increasing squeezing of customers by microsoft, and the increasing viability of alternatives I wouldn’t count on the “Windows Uber Alles” vision to last much longer.

  12. I missed the comment “not using always-on broadband”.

    Talk about throwing the baby out with the bathwater!

  13. Superior Windows platform? Hah! I’ll take my iBook any day over the Dell C600 I have to suffer with at work (not totally Dell’s fault, MS Windows has something to do with it too). Every solution has it’s place, but the Mac works best for me…

    I also think the iPod/iTunesMS combination is a winner. It gives customers good quality, reasonable prices and doesn’t treat them like criminals.

  14. I think this is a good business move, not just because it sells more iPods, but because as consumers become more familiar with Apple, they may be more willing to buy their products. Apple has a history of coming up with great ideas and then doing a lousy job of turning them into profit. This could be the beginning of the end of that cycle.

  15. “Clearly superior and much beloved Windows platform”

    Thank you very much! I needed a good laugh on a rainy Friday.

  16. Well, if Jobs has coughed up the continuing income stream from iTunes in its entirety, in order to focus on selling gadgets, then I doubt that Apple has broken its practice of botching the business decisions.

    The better business model is selling gadgets at breakeven or less in order to hook people into paying you ongoing fees to use whatever service the gadget is a portal to. The past fifteen years are littered with the corpses of gadget makers and sellers that tried the alternative approach.

    Apple has always been gadget-centric, which has been an error in the past, and I see no reason to believe that repeating the error will give a different result this time.

  17. No doubt iTunes will help sell a lot of iPods to Windows users. And once they get to see how cool Apple’s products are many of them will probably be disabused to the insane notion that Windows virusware is “clearly superior.”

  18. Guys, the Mac press has always maintained – quite correctly, it seems – that Apple is primarily a hardware company. It nearly went into the tank the one time it tried to license its OS to clone makers and port it to use on Intel chips. Innovative gadgets are what they are all about as opposed to the Windows world with its monopolization, stagnant standardization, and lack of imagination. I am convinced that Apple could have a larger market share if it really wanted to, but chooses this business model instead. Apple does quite well for itself, and has the cash reserves to prove it.

  19. I should’ve pointed out that the author of the piece is not clear about the EXISTING tax on digital media and equipment (https://reason.com/0004/ci.jt.tax.shtml) one which did not bring us a compulsory license.

  20. I don’t want to turn this into an Apple vs. Windows argument, but I can’t resist. I have a question for StMack. Why would you write a virus for the Mac? What are you going to infect, 5% of the computers worldwide at the most? Whats the point of that? Windows does have its flaws, trust me I know, I do Windows tech support work for a living, but people write viruses for Windows because Windows is everywhere. It is a big, fat, juicy target, and hitting it can cause a lot of damage. If the roles were reversed, you would be calling Apple’s OS ‘virusware”.

  21. I don’t know why folks refer to Windows as “virusware.” I’ve been using different versions of it for years and have never gotten a virus – I’m just careful and use my head. Then again, I’m bright enough to use a mouse with more than one button.

    On the issue of the Register’s flat tax inevitability, I say “Bah.” It won’t fly. Good art has never been very profitable – that’s the rub of trying to be an artist. George Benson is a fan-frickin-tastic guitarist, but he sold his jazz-loving soul for pop music to make a living off of Masquerade, Turn Your Love Around and On Broadway. I can understand that. Gimmie the night.

  22. This is wildly off topic, but I just read in Reuters that a Singaporean cop got two years for consensual oral sex, which is illegal there, unlike prostitution.

  23. I am convinced that Apple could have a larger market share if it really wanted to, but chooses this business model instead.

    If that is the case, then Apple management is violating its fiduciary duties to its shareholders. Publicly held corporations should not be run as a hobby of management, but in order to maximize returns to shareholders.

    If Apple management can have larger market share but chooses not to, they should be fired and sued by the stockholders.

  24. Now, back to the article. I really don’t know what this guys point is. Regardless of what you currently think of the recording industry, it is responsible for changing the nature of music. In the old days music was the realm of monarchs and aristocrats, as they were the only people who could afford to subsidize artists. Mass production and distribution changed all this, and opened up the world of music to the population at large. And I don’t think that the technology has advanced to the point that the recording industry can be written out of the loop, which seems to be what he is suggesting.

  25. And now Penn State, where I go to school, is paying the RIAA (the RIAA president just HAPPENS to be on the PSU Board of Trustees) – through the new Napster 2.0 service for ALL students — see the link above.

  26. doh -click on my name for the link

  27. nothing against ipods, they’re very neat and all and i might buy one eventually if they get real cheap – but the windows world is sadly anything but standardized, in many cases. the mac world is much more standardized. which isn’t a bad thing in the slightest, saying this while typing on a g4. (though i can’t imagine subscribing to itunes or any other mp3 downloading service ever)

    that said, i can (well, just did) build a recording rig that will not only give me 8 tracks in and 8 tracks out at 24/96khz, a minimum of 120gb’s of hard drive space, a gig of ram, a 2ghz processor and a full track count (with eq, compression and fx on every track) of around 120 for about, oh, 1300 bucks. stable as hell under win2k, and i can actually use midi, someting osX folk are still hurting for, especially those using protools (an insane oversight on apple’s part, imo, despite their captive audience).

    there is no mac on earth that can come close to that price point and give me similar performance. it’s a question of how much you’re willing to pay for a particular interface and style, and how much working knowledge you have of a particular system, it’s components and it’s OS. the sort of territorial bigotry that goes into this from all OS sides (including *nix’ers, obviously) is fucking ridiculous. platform cheerleading hits an awful lot like cultism, with people digging in to defend their real or imagined stake in their consumer choices.

  28. “…the clearly superior and much beloved Windows platform”

    This ought to be like on Slashdot, so we could moderate with a point system. I’d say -1, Troll.

    πŸ™‚

  29. Apple may not be profiting directly from iTunes at the moment, but do not discount the future. It is still a new service, and part of Apple’s transformation toward lifestyle/media company. Perhaps economies of scale will emerge, or brand extensions develop, which will increase the profitability of iTunes. Whether you agree or disagree, you can vote with your portfolio.

    As argued on reason.com, iTunes lets people enjoy the sings they prefer for less total cost. Even if the recording industry has temporarily preserved their cartel profits, consumers get more for less, too.

  30. bennet – i don’t think that technology has advanced to the point where the recording industry is useless (though for pop a lot of the old costs, like engineers who knew what they were doing, are now being phased out) but what technology has done is change the cultural attitude of a lot of younger folk towards buying music. that’s what’s going to kill them in the end, that and their insane prices and crappy product.

  31. off the topic, but am I the only one getting a weird error when (and only when) I go to the reason page?

  32. ya know, a lot of pro microsoft folk come off like drunken hockey players.

    but…

    a lot of mac evangelists come off like scientologists.

    not sure which is worse.

    it’s like a bitter and protracted dick size argument. unless you get sex because of the OS you use, it shouldn’t be a vital part of your sense of self.

  33. Apple (like Microsoft) gives away a lot of software with each computer it sells. I suppose The Register thinks this makes Apple the “slave” of its software engineers.

    As a Macintosh software engineer, I only wish it were so….

    Seriously, there’s nothing unusual about selling one part of a product at a break-even or loss level in order to make money on other parts of the business chain. If the goal is just to sell iPods, that’s a perfectly legitimate business model. (And in answer to one of the comments above, the responsibility of business management is to make money, not to maximize market share.) If the goal is to get established in the market now in order to turn a profit later, that’s likewise both legitimate and common.

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