Apple Lumps Software Sales Into iTunes
February 12, 2013

iTunes Beats iPod, Comes In Second To Samsung

Michael Harper for — Your Universe Online

Apple is known all over the world as the purveyor of iPads, iPhones, Macs and, these days to a lesser extent, iPods. Yet, behind the massive profit margins baked into these products, Apple has other sources of revenue that, while they may seem smaller in comparison, are actually quite significant. According to industry analyst turned blogger and podcaster Horace Dediu, Apple´s iTunes business is booming, becoming their fourth largest business over all.

According to Dediu, iTunes has become a bigger business for Apple than their slowly declining iPod business. Once the poster child for the brand, the iPod has declined ever since the iPhone was released in 2007. The headline grabbing factoid from this analysis: iTunes and accessory sales are a bigger business in terms of revenue than every other phone vendor except Samsung.

Apple has recently done some reconfiguring and redefining of their other business units. Revenues that were once lumped into the “Software” category, have now been combined under the larger umbrella of “iTunes.”

These software sales include iWork, OSX and Apple´s line of professional apps, such as Aperture and Logic.

It´s not a stretch to have these sales counted as iTunes revenue. After all, this software is now sold via the Mac App Store, which is seen as a kind of iTunes.

“When re-stated this way, iTunes becomes much more than a “break-even” business,” writes Dediu in his blog post.

“My own estimate for its gross margin as currently reported is between 15% and 17% but it could be even higher.”

In addition to adding sales from the Mac App Store, Apple has also begun adding accessory sales to their iTunes category. These sales were once reported as iPad and iPhone sales.

With all these changes to iTunes, Dediu claims the business is growing steadily and rapidly. Over the past 2 years, iTunes has grown “well over 30%” year-over-year, and hasn´t shown any sign of slipping during the slow seasons. All told, iTunes contributed $13.5 billion to Apple´s 2012 total revenue. The year before, iTunes brought in $10.2 billion.

With all this growth, Dediu and his brightly colored charts suggest not only did iTunes overtake the iPod business unit two years ago, but it also looks to overtake the Mac unit sometime this year.

Apple also lumps sales of their Apple TV into accessory sales. Should Apple continue to focus on the current design, iTunes+Accessories could quickly rise up to be one of Apple´s top three businesses.

As it stands, Dediu claims, when isolated, iTunes+Accessories already earns more revenue than HTC, LG, Motorola, Nokia, RIM (now BlackBerry) and Sony. The only phone maker to earn more than iTunes+Accessories is Apple´s Best Frenemies, Samsung.

During Apple´s recent fourth quarter earnings call, Chief Financial Officer Peter Oppenheimer explained the decision to lump revenues from the App Store, third party accessories, and other software and service sales into iTunes as a way to streamline the way the company looked at their businesses.

“All revenue from iTunes, standalone Apple and third-party software and services is presented as a single line item and revenue from all Apple and third-party accessory sales is presented as a [separate] single line item,” announced Oppenheimer during last month´s call.

"We believe this presentation provides a logical grouping of revenue sources and also provides greater transparency into our results,"