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I'm sure the iTMS at least breaks even, and turns a small profit.  But the real money is from iPods and Macs.  The iTMS is essentially a value-added service.  It's a way to entice people to buy other things - and once they have - to keep pumping money into Apple.

But Napster, other than their co-branded player, doesn't really have that.  They could have leveraged their Roxio products for CD authoring and such, but chose to sell it off to Sonic instead.  So instead of having multiple revenue streams, they put all their eggs in one, low-profit margin basket.  Dumb.

Czachorski wrote:

For now.  Envision the music business in 10 years.  Do you think many will be buying physical media then?  If brick-and-mortar stores can make money today with all their overhead, than there is big profit in on-line music in a few years when physical based media is obsolete, and diminishes to the marketshare of where vinyl is today.

When we get there, if Apple manuvers themselves right, they may have a juggernaut on their hands.

In ten years?  I still envision some form of physical media, for several reasons:
1. Quality - AAC is still a lossy format.  Audiophiles will demand greater quality.  It is possible that Apple and others may sell songs encoded in a lossless format for a premium, or some other solution, or there will be a better compressed format.
2. Market - Not everyone has a computer.  Not everyone has broadband internet access.  For those without PCs and broadband, CDs are still needed.  The adoption rate is growing, but I don't think we'll see adequate market penetration in ten years to make physical media obsolete.
3. Nostalgia - They still make vinyl.  Why?  Because some people still like it.  Some people want a physical copy with full album art, lyrics, etc.  Some people also prefer to shop in person at an actual store and browse, rather than shop online.

This also assumes the iPod will maintain its position of dominance in the market.  The success of iTMS depends upon it.  Without it, iTMS would lose customers.  Or, if the iPod/iTMS phenomenon grows, there will be more pressure on Apple to open the iPod to other music stores and the iTMS to other players.  They'll be accused of using the same sort of tactics as Microsoft.

I'm not sure there is necessarily big money to be made.  The online stores have overhead as well.  As they expand, they have to add more servers to handle the load, as well as provide bandwidth.  Their costs aren't fixed either.  The change will happen, but slowly.  I don't think it will be as soon as ten years.

Czachorski wrote:

robco wrote:

I'm sure the iTMS at least breaks even, and turns a small profit.  But the real money is from iPods and Macs.  The iTMS is essentially a value-added service.  It's a way to entice people to buy other things - and once they have - to keep pumping money into Apple.

For now.  Envision the music business in 10 years.  Do you think many will be buying physical media then?  If brick-and-mortar stores can make money today with all their overhead, than there is big profit in on-line music in a few years when physical based media is obsolete, and diminishes to the marketshare of where vinyl is today.

When we get there, if Apple manuvers themselves right, they may have a juggernaut on their hands.

Also when that goes away, that could mean the reduction in pricing and competition for price point.

Artists sign up with record companies -> RIAA because they have the system in place for the massive amount of distribution costs and complexity.  When you buy a CD at a store, you are not only paying for the CD, but the packaging, warehousing, multiple shippers and the store's cut.  Without that, with the exception of promotion, all artists will be pretty much on the same level.  There will be no advantage to sign up with record companies.  If there are more distributors of music not tied to the current industry, price competition will occur, and cutting will bring really low prices.

the profit margin per song is relative - very low in fact

The profit margin is very high for record companies.  They don't have to manufacture or distribute (CDs/LPs/tapes), or even pay for Apple's servers.  Yet songs cost about as much as they do on CD, and the record companies get to take a cut that, in many cases, is probably based on the manufacturing business model.

But hopefully, this distribution method will give more money to the artist(