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Tue, 24 Apr 2007 Apple makes money on iTunes, analyst

Analyst claims Apple makes 10 cents on each song sold

Jonny Evans

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iTunes may have become a lot more profitable for Apple since the service launched in 2003.

Rapidly increasing sales and a growing user base means the company has been able to secure better – and more profitable – deals for some of the infrastructure its original price structure supported, Pacific Crest Securities analyst Andy Hargreaves claimed this week.

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Per-payment fees charged by credit card companies, for example, may have shrunk as Apple's sales success enabled it to negotiate better deals.

Apple Insider reveals that Apple has reduced these fees by gift card distribution, encouraging larger transactions and by managing weekly swap of credit card transactions.

He argues that credit card fees are the, "primary reason iTunes profitability has not been higher historically."

Hargreaves also claims that Apple's operating profit on each song sold has climbed to 10 cents per song sale.

His breakdown on the wealth distribution inherent in a 99 cent download follows (thanks to Seeking Alpha):

Wholesale cost (music): 69 cents.
Network fees: 5 cents.
Transaction fees: 10 cents.
Operating expenses: 5 cents.
Profit per song: 10 cents.

The analyst also believes Apple: “Has built and is capable of launching a subscription music service," which he expects the company will introduce in the next 18-months. He expects this to cost between $10-15 per month.

Apple has revealed it hopes to have its iPhone available in most international markets within that time period.

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