Everyone at Apple should be patting themselves on the back after a record-shattering Q1 2015 financial quarter, in which the company raked in $74.6 billion in revenue and an impressive $18 billion in net profits.
But business unit was conspicuous in its absence from Apple’s celebratory earnings call and press release: iTunes.
Now that Apple has filed its 10-Q quarterly report with securities regulators, we now know why: Outside of the App Store’s continued success, iTunes was one of the few areas of Apple business that declined over the last three months. How badly? Read on to find out.
When it comes to digital media consisting of music, movies, TV shows and books, iTunes media declined 7 percent year-over-year. This continues a downward trend Apple has experienced in recent years, particularly with the rise of subscription-based streaming media providers over the pay-per-download model that Apple has operated with its iTunes Store since 2003.
In 2014, The Wall Street Journal reported that iTunes revenue had dropped 13 percent versus the previous year, which itself was down 5.7 percent from 2012. At the same time, music services like Spotify have overtaken iTunes in some markets, when it comes to earnings.
Apple has tried to fight back on several fronts, the most obvious of which is its $3 billion acquisition of Beats Electronics. The plan is reportedly for Apple to launch a revamped version of Beats’ streaming music service, possibly under the iTunes banner, early this year. Apple is allegedly looking to lower monthly subscription prices to just $5.
Earlier this month, Apple acquired U.K. startup Semetric, which runs a music analytics tool for allowing labels to track sales, BitTorrent, YouTube, Spotify and social-networking data for their artists.
Cupertino has also been speaking with artists in hopes of landing more exclusive album deals for iTunes, in line with the highly successful Beyonce album experiment from December 2013. This may be a long-term plan, however, as early talks with record labels are not going well.
Finally, Apple has been toying with new marketing strategies for iTunes — such as the company’s first attempt at a Tumblr blog late last year, and a new “Free on iTunes” section, designed to highlight lesser-known artists and TV shows.
Don’t worry too much, though, as the amount Apple is losing from declining media sales is more than made up for by the phenomenal success of the App Store, which makes more money than Hollywood. As Apple notes in its filing:
“iTunes generated a total of $2.6 billion in net sales during the first quarter of 2015 compared to $2.4 billion during the first quarter of 2014. Growth from iTunes was driven by increases in revenue from iOS app sales reflecting continued growth in the installed base of iOS devices, the expansion in third-party iOS apps available, and increased volume of in-app purchases; partially offset by a 7% year-over-year decrease in net sales of digital media consisting of music, movies, TV shows and books.”
Still, the sooner Apple can find a way to catch up to the likes of Spotify, the more it can shore up one of the few areas of its business that could be making more money than it already is. First-world problems, eh?
Source: SEC.gov
Luke Dormehl is a U.K.-based journalist and author, with a background working in documentary film for Channel 4 and the BBC. He is the author of The Apple Revolution and The Formula: How Algorithms Solve All Our Problems … and Create More, both published by Penguin/Random House. His tech writing has also appeared in Wired, Fast Company, Techmeme and other publications.
4 responses to “iTunes’ outdated business model is getting eaten alive”
Apple has a long way to go to make Beats as useful as Spotify. I love Apples work, but Spotify is far superior.
Apple could do it and it’s probably something they are working on, but anytime a company buys another, it takes at least a year or two to really see the benefit from that buyout. Look at how long it’s taking Apple to use the sensors that PrimeSense makes. We haven’t seen anything yet and it’s been over a year.
Look at iTunes Radio, what’s the major difference between that and a subscription service? How much you pay on a monthly basis and how much content is on it.
Also, it boils down to how good it sounds. Spotify doesn’t sound that good (to me on my home system) as compared to other streaming services such as Tidal. Tidal uses Lossless files instead of lossy and it’s more expensive due to the larger file sizes being streamed. Have you compared Tidal to Spotify? I don’t use Spotify for a variety of reasons.
1. I found some content that was posted illegally and they wouldn’t remove it that quickly after being notified.
2. Justin Bieber is an investor and I will NOT knowingly pay money for a service to help that idiot make money. Just a personal choice. :-)
3. I’m not a fan of lossy file format unless it’s the only thing available.
4. I listen to my own catalog of music and use iTunes radio VERY sparingly and I have no real need for a subscription service.
I also don’t listen to much music on my iPhone while out and about. I do most of my listening at home with my home stereo and computer music server.
I don’t like streaming services if my connection is charged by the GB and/or has spotty service as I hate when audio or video content starts and stops, that’s annoying so I don’t do a lot of streaming in the first place. If and when I can get unlimited high speed Cellular streaming for an affordable price, I might opt for that for mobile devices, but right now, I don’t get much data on my cellular account and public WiFi SUCKS for streaming anything.
Apple needs to update their iPod business is a problem since Apple hasn’t promoted that product line in a while. So, it’s kind of outta site, outta mind. These subscription services don’t make any profits. I’m surprised Spotify is still around, those guys are really good at losing money.
Throw the subscription as an addition to iCloud… Just an idea. If you bundle it up, people will use it. EVERYONE has an Apple ID.