Billboard’s Glenn Peoples recently wrote an article explaining that Amazon can sell music for such a low price because their ARPU (Average Revenue Per User) is so high. Using data from Business Insider, he outlines that at $189, Amazon’s ARPU is 688% more than Google’s ($24) and 4,625% more than Facebook’s ($4). Cheap albums are a great way to get folks into Amazon where they’re likely to see other items they’d like to purchase.
Unfortunately, the chart at Business insider that outlines various companies’ ARPU doesn’t include Apple, so I dug into Apple’s 10K for their financial year 2010 (which ended on September 25, 2010), and gathered the following info:
– $65 billion in annual revenue
– 7.6% of this revenue is from “other music related products and sales” which includes iTunes Store sales, iPod services, and Apple-branded and third-party iPod accessories
– iPod is 12.7% of revenue
– iPhone is the highest category with 38.6% of revenue (wow!), which includes iPhone sales, carrier agreements, services, and Apple-branded and third-party iPhone accessories
– In total, Apple had over 111 million total unit sales from desktops, portables, iPods, iPhones and iPads
– If each unit sale is an individual user and only users who purchase Apple hardware purchase their other services (music, software, etc), then Apple’s ARPU is $585
Yes, that is one big “if”, and the ARPU could be even higher…or lower. Apple users are obsessive and likely to purchase more than one product from them. How many people do you know with at least a Macbook and an iPhone? On the other hand, there also may be iTunes users who do not purchase any of Apple’s hardware.
Following my logic, Apple’s ARPU is 210% greater than Amazon and 2,338% greater than Google. Granted, they all have entirely different business models, but two of them currently have music stores and the third is suspected to launch one in the near future.
We’ve seen the demise of stores that primarily sold music (Tower, Virgin, HMV) and we’ve seen how big box stores like Best Buy treat music – they keep reducing shelf space. There’s no doubt that iTunes was a huge, positive step for music retail, but when recorded music sales represent such a small percent of their overall revenue, content owners are truly at their mercy. It’s no surprise that the music industry needs a dedicated digital music service to be a successful business; a business where it feels like a partnership between the service and the content owners. Maybe this is akin to saying that I’d like there to be peace on earth, but in this brave new world, it’s this group that is trying to grow the music market because we’re all entirely dependent on it!
By the way, I just checked my AMEX year end summary and I spent about $620 through Amazon this year. 7% of that was on music and none of that was for full-priced albums.
And one more side note: I previously suspected that Apple was phasing out the iPod with the gigantic hard drive because they were moving towards a streaming service, and while that may be true, it’s likely more of a financial reason. Apple makes more money off of iPod Touch, so while the number of iPods that were purchased in 2010 decreased by 7% from 2009, their iPod revenue increased by 2% due to the growth of the Touch. Adding on a big hard drive to the Touch may make the retail price unreasonably high.