Explaining The iPod-iTunes Connection One More Time

from the not-dead-yet dept

Tue, Dec 12th 2006 4:00pm — Joseph Weisenthal

What is it about the iPod that causes so many to be obsessed with its demise? Analysts always seem to be on the lookout for the iPod killer, whether it's a competing mp3 player or the mobile phone. The obsession spills over to the iTunes store, the relationship between which and the iPod people don't seem to get. So let's say it again: the iTunes store isn't there to make money directly; it's a loss leader to help boost sales of the iPod. And for an added bonus (to the company), the tracks' DRM help lock users into iPods, since they can't easily transport songs to another device. Back in September, an analyst at Jupiter warned that consumers weren't into the iTunes store, since most tracks people had on their iPods weren't bought from it. That's true, but it's not a problem for the company. As long as iTunes does its job of bringing people to the iPod and keeping them there, then it's doing its job. For some reason we needed another report saying exactly the same thing, as Forrester is now warning that most iPod users aren't buying iTunes-based songs, and that sales on the service have slowed down. Again, this warning means nothing. It bears no reflection on the health of the iPod, which will rack up another excellent holiday season, making Apple plenty of money. Furthermore, it's not even clear that iTunes is suffering, as Forrester alleges. Another firm came out slamming the Forrester report, noting that the timing of the sales is affected by things like gift cards, and the fact that people load up their iTunes after having received one for a Christmas gift. So, until iPod sales actually start to slow down (which has to happen eventually), can we cool it with all of the premature obituaries?

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36 Comments

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MikeJones, 12 Dec 2006 @ 4:35pm

Uh huh...
I seem to remember TechDirt spazzing out when news of the Zune came out. Claiming it might be an i-pod killer.

So why the sudden change of heart? All this time I've personally hated the media's obsession with anything i-pod... it's just a freaking mp3 player. But YOU media sites keep coming up with 'news' on the topic.

Just this time, the news is completely opposite of your site's opinion only a couple months ago. Good job keeping those visitors coming, TechDirt...
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Dr Dank PhD, 12 Dec 2006 @ 4:38pm

Your site sucks.
Techdirt is the worst site I've ever read. Your opinions are chock full of irrational hatred. I am adding your domain to my hosts file to block. Bye.
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But yo..., 12 Dec 2006 @ 4:42pm

Re: Uh huh...
I'm Mike Jones
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Ryan, 12 Dec 2006 @ 4:46pm

how is it a loss leader
can somebody explain how it's a loss leader?

they only need 1 copy of each song. Assuming you sell that one copy 20 times, you've made money (since a whole album of 20 songs is less than the $20 cost of 20 songs)

There's no inventory to maintain, no shipping costs, etc.

Sure the first sale might be a loss, but I don't see how Apple is losing money on this.

Unless of course you're counting the 'we sell it for $1 but people might pay $2 so we're losing $1 per song' type logic.. but that's not a "loss".
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Nathan, 12 Dec 2006 @ 4:52pm

Re: Your site sucks.
And yet you posted. Wow.
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Aaron, 12 Dec 2006 @ 4:58pm

I'm not concerned with whether iTMS is a winner fo
Rather, iTMS represents (to some degree) the industry's vision of digital music deliver: preserving the old model of charging per album or per single, locking down use, and deciding who gets to play ball in the market. Granted, even the industry's approval of iTMS is pretty grudging, but that reflects more on the extent of the industry's stinginess than it does on Apple's independence.

The iPod's a great product and I wish it no ill will. But if iTMS is failing, then the industry's way is failing, and they'll be forced to try better alternatives.
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JChan, 12 Dec 2006 @ 5:00pm

Re: how is it a loss leader
iTunes is a loss leader because they have to pay a large chunk of the 99 cents per song to the label that produces the music. So the whole inventory / shipping thing doesn't apply here.
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AMP, 12 Dec 2006 @ 5:01pm

Mike Jones does not like you....how will you sleep?
I think TechDirt needs to post an explination of a loss leader. Everytime you talk about one, it leads to posts from people who clearly do not understand what a loss leader is.
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Arochone, 12 Dec 2006 @ 5:01pm

Re: how is it a loss leader
You pay $20 for a CD. Do you really think the RIAA would let you make 200,000 copies of that CD and sell them? Why do you think it would be different for iTunes? They pay per download, just like everyone else. Well, maybe they pay a set license fee for each song or something...but the point is, they aren't buying a song and then just copying it. They have to buy a license to sell it. If they didn't, they'd be sued to oblivion by the RIAA.
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Mike (profile), 12 Dec 2006 @ 5:30pm

Re: Uh huh...
I seem to remember TechDirt spazzing out when news of the Zune came out. Claiming it might be an i-pod killer.

You remember incorrectly. You can see all our posts here, where we've pretty clearly pointed out their mistakes all along the way: http://www.techdirt.com/search.php?q=zune&x=0&y=0

You must be thinking of some other site.
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Dr. B. colson, 12 Dec 2006 @ 5:35pm

It's the cool folks
All these comments about iPod killers, blah, blah, blah. And the ridiculous statement that the iTunes store does not make money, WHO cares. The fact is that the iPod in all it illterations is just 'COOL' I'm a child of the 50's and 60's and (bad analogy) the Fonz said it time and time again. Be COOL. and now as then having an iPod is just plain cool dudes. Suffer the idiots who will never realize that long hair was cool back in the day and short hair was stupid. Stupid is what stupid does. Surprizing how things don't change. The old guy.
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Mike (profile), 12 Dec 2006 @ 5:39pm

Re: how is it a loss leader
can somebody explain how it's a loss leader?

Some good definitions here: http://www.google.com/search?&q=define%3Aloss+leader

But, basically, it means they don't make money on the songs and they use them to drive business to other parts of the business... which is what they do.

There's no inventory to maintain, no shipping costs, etc.

But they do have to pay the record labels and all the other costs associated with running and maintaining the store, as well as transaction fees. The biggest cut, obviously is the labels, who take somewhere between $0.67 and $0.70 per $0.99 song sold. That doesn't leave much margin when you add in all the rest.
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UniBoy, 12 Dec 2006 @ 6:03pm

Apple software is a loss leader, period.
Lest we forget Apple is a Hardware company. Meaning that hardware is where they earn their bread and butter. Mac OS X costs a lot of money to produce/maintain/enhance too. Then, Apple simply gives it away with every new Mac sold.

It is a similar story with iTunes. Sure, you can argue that the cost for doing iTunes or Mac OS X is built into the cost of the iPod or an iBook. And, that is exactly the point. If it helps sell more hardware, then its worth their investment.

What the analysts ought to have realized by now is that with greedy record labels who are scard to death of losing control, it is impossible for anyone to run a profitable music downlaod store. I'm sure Apple comes closest, because of volume, which is mostly attributable to their success with the iPod.

Anybody who cannot truly bring a real "iPod killer" to market had better just give up!
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dwreid, 12 Dec 2006 @ 6:15pm

The best reason to read TechDirt
I have to admit that I read TechDirt for several reasons but the best is this: After reading the sometimes interesting and occasionaly informative article, I then scroll down to the uninformed rantings of the obsessive first posters and when I've read them, I feel really good about myself. LOL
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Anonymous Coward, 12 Dec 2006 @ 7:21pm

Re: how is it a loss leader
You're are absolutely right. They don't have to pay to maintain hardware or databases or have any bandwidth costs to run that site, all the songs should be free....

/sarcasm
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Anonymous Coward, 12 Dec 2006 @ 7:23pm

"the tracks' DRM help lock users into iPods, since they can't easily transport songs to another device"

I can't say as I agree with this. You can burn the tracks to CD, and then use them or rip the to MP3's. I know it isn't falling off a log, but it isn't rocket science or expensive either.
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Ryan, 12 Dec 2006 @ 7:59pm

Why iTunes?
who in their right state of mind would spend about a dollar per song anyways? i mean come on, even the smallest ipod can hold at least 1000 songs, thats 1000 dollars people. thats insane. its music, i listen to it on the radio for free every day, i might as well just download limewire and download 3000 songs into my ipod, screw itunes, its crap
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Todd, 12 Dec 2006 @ 8:29pm

re: loss leader
I'm still not convinced ITMS is a loss leader. But since you guys all say it is, I guess it's so.

I don't think anyone needed a definition of what a loss leader is, just proof that iTunes is indeed not generating any profit for Apple.

While we're on the subject, how much profit do you think they are really making on iPods? Not assuming anything, just curious.
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The infamous Joe, 13 Dec 2006 @ 4:31am

Re: Why iTunes?

Ssh, lad, do you wanna get sued?

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MrPaladin, 13 Dec 2006 @ 4:37am

Apple in General...
This again goes to point out why I apple is not doing better as a whole...

Look at their commercials where they 'try' to slam PPC users for their faults and then they have glaring ones like this and think we dont notice...

I've had one I-Pod in this house for my daughter because it was the 'hip' thing at the time to have one... she wont touch one now because she knows how retarded it is... and she looks for other features in other MP3 players...

False advertising might get you a sale, but it wont get you a customer...
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Todd, 13 Dec 2006 @ 5:23am

re: Apple in General
@Mr. Paladin, what goes to point out why apple is not doing better as a whole? I didn't read anything in the article or even the comments that came to that conclusion.

Your Daughter thinks the iPod is retarded and won't touch it? That sounds a bit silly and very hard to believe.

I haven't met one person who has an iPod that wishes he had bought a different brand.
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Tyshaun, 13 Dec 2006 @ 8:04am

so....
When did TechDirt start working for Apple? This article sounds like it was written by an iPod fanboy, not an objective technology analyst.

As per the core issue, the demise of iTunes, all I have to say is that someone already touched on it. This site is always realing about the impact of DRM on the creation and proliferation of content yet you seem to be perfectly OK with the incestuous, nay downright inbreed relationship between iTunes and iPod. Where is all the rhetoric about how iPod is so horrible for supporting iTunes? Why are you not advocating burning iPods in ethergy for their support of DRM, even as a preferred yet not required format?
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Anonymous Coward, 13 Dec 2006 @ 9:38am

i have yet to see one poster on TD that isn't a fanboy of something in an article. they may be for the one side, or the other, but everyone is a fanboy...

just thought i'd get that out.

next...won't touch an ipod? why? battery? i've had mine for almost 3 years now. no issues with it (except for a week when it just didn't want to work. ileft it sit, and came back to it, plugged in the power cord...bam it was fine. the only other problem is from me constantly dropping it, and having some bad sectors in the hd. but i bet if i dropped the zune like i did my ipod, it would BSOD faster than you can say Micro.....)
what features do you want an an MP3 player? um...1)play mp3's. humm ipod does that. 2)non drm...ipod does that...3)um...play music? oh wait.

to whoever is confused about loss leaders. how about this. say you pay me 10 bucks, and then i give y ou 50 bucks back. i.e. you make 40 bucks. you lose 10 first, but then you get it back. that's like itms. let's see how much a song costs.... 99 cents. take away riaa cut...70 cents lets say. that leaves 29 cents. now..there are server hardware costs, server software costs, bandwith, server housing costs, taxes, itms software development. quite a way to stretch 29 cents.

ohwell
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AC, 13 Dec 2006 @ 10:33am

Re:
"what features do you want an an MP3 player? um...1)play mp3's. humm ipod does that. 2)non drm...ipod does that...3)um...play music? oh wait."

FM radio? Voice Recording? OGG Playback?

I'm glad the Ipod works for most but some of us desire other things as well.

I just love all you idiot apple fanboys though. So smart!
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J. J. J. Schimdt, 13 Dec 2006 @ 10:37am

Re:
How about a replaceable battery?
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Pick Me, 13 Dec 2006 @ 10:39am

Re:
OOoh Ooooh I know

http://www.newegg.com/Product/Product.asp?Item=N82E16855125012

Much nicer than an Ipod
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Meh, 13 Dec 2006 @ 10:52am

Re:
I would rather have one of these

http://www.creative.com/products/product.asp?category=213&subcategory=214&product=1 5306
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Mike (profile), 13 Dec 2006 @ 10:55am

Re: so....
This site is always realing about the impact of DRM on the creation and proliferation of content yet you seem to be perfectly OK with the incestuous, nay downright inbreed relationship between iTunes and iPod.

Search engine says otherwise:

http://www.techdirt.com/articles/20060324/1035206.shtml
http://www.techdirt.com/artic les/20051104/1351251.shtml
http://www.techdirt.com/articles/20061116/093907.shtml
http://www.techd irt.com/articles/20051010/1440231.shtml
http://www.techdirt.com/articles/20060706/168242.shtml
htt p://www.techdirt.com/articles/20061002/090106.shtml

We've been just as harsh on Apple's use of DRM as others. (And, personally, I've never bought anything on iTunes for just that reason).

Why are you not advocating burning iPods in ethergy for their support of DRM, even as a preferred yet not required format?

We don't advocate burning anything in effigy. All we do is try to advocate better business practices, and we've made it clear that DRM is dangerous for the entire industry, including Apple. But, that wasn't the point of this post, was it?
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Anonymous Coward, 13 Dec 2006 @ 11:12am

hey AC it's nice to know that you're an idiot fanboy for your mp3 player.

replacable battery....ok. i'll give you that one. but if you are a "true" geek, a guitar pick and ebay will get you past that one.

apple cators to the market. and guess what, it works. you may complain that the ipod is a bad choice, but the countless millions prove you otherwise. so until the masses (i.e. the millions of ipod owners) switch, apple won't change a thing. whould you? spend 55 million to please 3% of your customer base? or spend 30 million to please 90% of your customer base? or are you that bad at math?

160 for 4 gigs? better than the nano...sure, but for 300 i'll get about 7x the storage capacity.

didn't get the price for the zen, but once again..up to 8 gigs.

but either way, compaing on TB about fanboys is not gonna make apple change. would you buy an ipod if they made it like the zen or samsung? so does that make you a closet fanboy?

response?
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Joe Schmoe, 13 Dec 2006 @ 11:36am

"I can't say as I agree with this. You can burn the tracks to CD, and then use them or rip the to MP3's. I know it isn't falling off a log, but it isn't rocket science or expensive either."

No, but it's a friggin hassle and just plain insulting. I am a customer (well, figuratively. not a customer of ITMS), not a thief.

My iPod has caused me to buy more music, but from eMusic instead...
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Anonymous Coward, 13 Dec 2006 @ 12:20pm

heck, you don't need to burn to a cd, just burn to an iso, then have a virtual drive and rip from that

that way you don't even waste a cd-r/rw
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Joe Schmoe, 13 Dec 2006 @ 1:24pm

"that way you don't even waste a cd-r/rw"

You are correct, and I've considered that. But it still entails ending up with a copy of a copy and the degredation that entails...

I'll spend my money where I'm respected...
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AC, 13 Dec 2006 @ 1:32pm

Re:
First - Anonymous Coward, if that is your real name, do you really feel the need for all the personal attacks in your post? You wrote "you're an idiot fanboy for your mp3 player." Truth is I dont even own one. I don't see the need for it. Fanboy?

You then write "or are you that bad at math?" I guess you have to be clinically retarded to NOT buy an iPod? Fanboy?

You are right though, apple is providing exactly what most consumers want. I'm just not most consumers and having yet another Anonymous Coward write "what features do you want an an MP3 player? um...1)play mp3's. humm ipod does that. 2)non drm...ipod does that...3)um...play music? oh wait."
I felt that maybe some people were unaware of the capabilities of other MP3 players.

Now onto your claim of more storage. I see the links posted to Newegg were comparable to the Nano. So unlike a fanboy I looked at Newegg for an alternative and found this to be comparable and cheaper (although not noticeably cheaper)

http://www.newegg.com/Product/Product.asp?Item=N82E16855102015

http://www.newegg.com/ Product/Product.asp?Item=N82E16855101445

I might buy an iPod or a Zune or a Zen. It really doesnt matter to me. I was just attempting to inform the fanboys here that there are alternatives to there precious iPods.

response? fanboy?
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Anonymous Coward, 13 Dec 2006 @ 8:19pm

Here's one more advantage of the iPod. When the new model comes out, I'll be able to sell my old one, and get the brand new one for little, if any money. Can't say that about the off brand players.

I do think that I might give up my iPod and get the Archos 504, though.
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Anonymous Coward, 14 Dec 2006 @ 4:58am

fanboy...yeah...coolies.

retarded to not buy an ipod? nah. just saying that apple caters to it's market. and since they "established" the mp3 player market, they have a hold. sure there were diamond rio's and whatnot before the ipd, but apple came in with huge capacity, sleek design, "ease of use" and whatnot.

what then happened, is that apple grew a loyalty base. and they kept them. yeah, do some stuff, a few people leave, but for the most part, anyone that i've talked to with mp3 players about 30 of 35 had ipods. of those 30 29 said they'd get another ipod. period. the other one said maybe, depending on what's on sale.

so yeah, if you have a winning strategy? why bother? spend an extra 20 million to gain 3 million? i'll pass.

call me a fanboy, call me retarded, call me whatever. just remember, you are the same in someon else's eyes.
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unknown, 8 Jun 2007 @ 12:33pm

none
How do you download music from the computer to your ipod
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