Apple’s iTunes Music Store

I’ve been playing with the new iTunes 4 on my Mac OS X iBook — including buying some new (actually, old) music! I became a victim of Apple’s referral technology — you know, others who like this artist also bought x, y and z. In my case, I somehow ended up at the Everly Brothers page and, after listening to a couple 30-second cuts of that oh so sweet harmony, bought a few old songs. 1-Click and they’re here. Very cool.

Apple issued a press release this morning about the success of the Music Store in its first week of production. Sold over 1 million songs with over half of the songs sold being sold as album sales. Apple claims this helps demostrate to the industry that individual song sales won’t seriously undermine album sales.

Let’s do the math. If we say that an average album has 10 tracks and that 500,000 of the songs sold were in albums, that says there were 50,000 album purchases last week. That leaves 500,000 individual song purchases.

The 50,000 album purchases should generate roughly $500,000 in revenues. Likewise, the 500,000 individual songs generate about the same. For a total of $1 MM in revenues for Apple from the Music Store’s first week in business.

Interestingly, Apple’s average sale amount would be $1 MM divided by 550,000 or about $1.82 with the distribution being totally bi-modal around $10 and $1. Except for one other factor: Apple’s fine print says they aggregate your Music Store purchases within a 24 hour period and post them to your credit card account as a total, not as individual songs. This would drive the average ticket much higher. In my personal case, I bought one track on Monday for $0.99 and 5 tracks on Friday for $4.95 for an average of $2.97.

So, what starts out looking like a ‘micropayments-almost’ transaction, actually beefs itself up because of some of the other dynamics of the service. As a result, the fees Apple pays for its Music Store credit card processing are actually a much smaller percentage of the sale amount that it might at first appear.

How big a business might the iTunes Music Store become? It’s already a $50 MM revenue/year run rate coming out of the gate. And this is only from the small community of Mac enthusiasts like me who just have to play with almost everything Apple does. Let’s say that opening the Music Store up to Windows customers adds 10X the volume — that would drive annual revenues into the $500 MM range, perhaps higher. Not bad for an online business that didn’t even exist before last Monday.

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