iTunes is the No. 2 music retailer in the United States ( ), and it in February, but nobody knows how much money Apple's actually earning from the service.
In Apple's earnings reports, iTunes revenue is lumped into a category called "other music-related products and services," alongside licensing revenue from iPod peripheral makers, and the company doesn't break out expenses or operating profit by segment.
So some Billboard reporters decided to do some back-of-the-envelope calculations, using Amazon.com's expenses as a benchmark for a large-scale e-commerce operation. They conclude that iTunes earned an operating profit between $160 million and $390 million on revenues of roughly $1.7 billion in the year ended September 30, 2007. They believe that the profit is probably on the lower end of that range--or perhaps even below it--because Apple spends more money on marketing and technology (the latter, because each sale must be fulfilled with a song download).
This is good news for all those start-ups wondering if it's possible to earn money with digital downloads: the answer is yes, if you get enough scale. But for Apple, iTunes is a drop in the bucket, compared with the business of selling iPods. The company garnered more than $8.3 billion in revenue from profit margins are pretty high on iPods., and teardowns tend to suggest that