When it comes to Apple’s iTunes Match, profit motive goes out the window — indeed it’s “immaterial.” Although Apple is most known for iTunes and the App Store, the Cupertino, Calif. company remains a hardware company — and very profitable one at that. The real value of the iTunes Match service is as the latest member of Apple’s vast iTunes ecosystem, acting as a honeytrap for hardware purchases.
Much of the $25 annual fee for iTunes Match is likely eaten up by music royalties and storage fees, believes Piper Jaffray analyst Gene Munster. Munster expects the service will earn $33.8 million annually if one percent of U.S. users sign up for iTunes Match. The figure could reach $169 million per year, if 5 percent of U.S. fans pay the $25 annual fee.
This isn’t the first time Apple dismissed profit for larger sales. Despite the iTunes Store and App Store costing the Cupertino, Calif. company an estimated $1.3 billion a year, Apple continues the services which it admits are break-even, at best. It’s obvious why there’s such little concern: the music downloaded from iTunes and the apps downloaded from the App Store have to be stored somewhere, and Apple would prefer it be an iPod, an iPad or a Mac.
But iTunes Match could kill the goose that lays Apple’s golden eggs, Munster fears. The iTunes Match service , which works by providing access to music not bought at the iTunes store, may reduce the need for consumers to purchase very profitable high-storage devices. Just 19 percent of early iPhone users bought the 64GB iPhone 4S versus 32 percent who chose the 32GB version.
There is some solace in the fact that the survey was of early adopters. The analyst said cloud-based storage appears not to be hampering hardware purchases.
“We still see benefits of higher capacity devices given the speed and convenience of local content, and limited access to the internet for some users (air travelers, for instance),” Munster writes.
In other words, Apple should push the iCloud, but not too hard.
