Apple iCloud: Nice incremental revenue boost, but halo effect more notable

Apple iCloud: Nice incremental revenue boost, but halo effect more notable

Summary: Apple has locked up the labels and will reportedly charge $25 a year for an iCloud subscription. That revenue stream---once you factor in splits with the music industry---is essentially peanuts, but the value of iCloud goes well beyond sales.

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Apple has inked its licensing pact with Universal Music Group and will reportedly charge $25 a year for an iCloud subscription. That revenue stream---once you factor in splits with the music industry---is essentially peanuts, but the value of iCloud will go well beyond the profit and loss statement.

First the news, CNet News' Greg Sandoval reports that Apple has cut a licensing deal with Universal Music. That move gives Apple all the major labels and Universal brings U2 and Lady Gaga to the iCloud party. Meanwhile, the LA Times reports that Apple will "eventually" charge $25 a year for iCloud and sell advertising around the service.

When you factor in the revenue split with the music industry---labels 58 percent, publishers 12 percent and Apple 30 percent---Steve Jobs & Co. will get $7.50 in revenue for each iCloud subscription.

As for the rudimentary math, Apple is projected to move 184 million iPhone units in calendar 2011 and 2012, according to Piper Jaffray analyst Gene Munster. We'll assume that half of those iPhone subscribers will ultimately pay for iCloud with Apple getting $7.50. That's $690 million in revenue a calendar year.

Apple is also expected to sell 75 million iPad units over calendar 2011 and 2012. Again we'll assume half of those iPad users buy the iCloud subscription. Those iPad units will deliver $281 million in revenue a year in calendar 2012.

Related: iCloud unveiled as Apple readies Moscone for WWDC (photos)

As for the iPod, Apple is expected to move 81 million units over calendar 2011 and 2012. We'll assume one third of those iPod users will get iCloud---it's unclear whether the nano will be able to tap into Apple's cloud service. One-third of that iPod base still gets you $200 million in revenue a year.

The grand total for Apple from iCloud at $25 translates into about $1.2 billion in annual revenue for the company. That's not a huge deal for a company the size of Apple, but it's not chump change either. In Apple's most recent quarterly SEC filing sales of music related products---iTunes sales---were $574 million for the first six months of Apple's fiscal year.

In a nutshell, iCloud will at least double Apple's music related revenue if that $25 a year figure is accurate. The math obviously gets more interesting for Apple if it gets 75 percent of its iPhone, iPad and iPod users on iCloud. And the figures would really look good if you assume that Apple goes with a working-class iPhone that gives it a much larger addressable market of 500 million units or so.

However, given that Apple is expected to report revenue of $103 billion in its fiscal year ending Sept. 30, iCloud is a nice add-on, but not a financial boon.

So what's the big deal? For Apple, iCloud and streaming music gives the company a nice moat against Google and Amazon, two companies that jumped first into the music locker business. In addition, Apple ensures that iTunes becomes more of a platform.

In the big picture, however, iCloud is more about the halo effect for Apple. The direct revenue attributed to iCloud doesn't matter as much as the value in the Apple chain. When we get real numbers to play with, the iCloud revenue impact will be more clear. For now, there's enough information to get a rough idea of how iCloud fits into Apple's revenue machine.

Sterne Agee analyst Shaw Wu summed up the iCloud impact, which goes beyond direct revenue.

iCloud could be a very big deal, making iTunes even more powerful and useful by allowing access to content from any device, anywhere. In addition, we notice that every time a major new feature is added to iTunes (like TV and movie rentals), its utility value increases, which in turn drives more hardware sales, i.e., iPhone, iPad, and Macs. Press reports indicate that Apple has reached cloud licensing agreements with the major music labels. What is less clear is if Apple has also reached deals with providers of TV shows, movies, and e-books. Regardless, we believe reaching cloud music deals would be a great start and further distance Apple from Google, Amazon, Microsoft, and others, which in the last 10 years or so have failed to put even a minor dent to iTunes.

Topics: Enterprise Software, Apple, Banking

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  • RE: Apple iCloud: Nice incremental revenue boost, but halo effect more notable

    A copy of Zune subscription style og Microsoft.
    Apple is running out of iDeas :)
    iluvmsft
    • As of now, it has nothing to do with music subscription model service

      @iluvmsft: people will **own** the music which they will be able to cast from iCloud to their iOS-devices, as well as Macs.

      However, lets see what exactly will be said on Monday.
      DDERSSS
      • Message has been deleted.

        Droid101
      • RE: Apple iCloud: Nice incremental revenue boost, but halo effect more notable

        @Droid101
        I believe @denisrs is saying that the music that you bought ala iTunes will now be playable via the cloud, rather than stored on your device.
        However, that doesn't really explain the $25 subscription. It sounds like that would in fact be the ability to *play* any number of songs any number of times from the cloud - but you wouldn't in fact *own* those songs. (no downloading/storing ability)
        Not sure how they're going to pull that off. Should be interesting.
        And you're right - my Apple zealotry knows no bounds. ;-)
        rossdav
      • rossdav, I was reading it that

        @denisrs
        you own the music you bought thru iTunes, but for an extra $25 dollars a month you can stream the music you own to any device.

        But I could have misunderstood it.
        Will Pharaoh
      • $25/y fee may have no relation to music label deals at all

        @rossdav: music label deals may be just about officially allowing already bought music to be streamed/casted to iOS/OS X devices wiresly from iCloud.

        And $25/y fee is what Apple will take from users for this service.

        These two things should not have to be connected at all. But, as I said, lets wait for Monday to be sure what actually will happen.
        DDERSSS
      • RE: Apple iCloud: Nice incremental revenue boost, but halo effect more notable

        @DeRSSS You mean the way that I already play any media I already purchased via Amazon.com on any device at home?

        I love how Apple likes to invent things that already invented, next week Jobs will probably try to sue Amazon for doing what they aways did because he thinks that he invented it.
        balsover
      • Not at home: everywhere, since it is about iOS devices, too; not only Mac

        @balsover: ... OS X devices.

        It is not what Amazon could offer; lifestyle changing innovation, this time, will come from Apple again.
        DDERSSS
    • RE: Apple iCloud: Nice incremental revenue boost, but halo effect more notable

      @iluvmsft
      As long as is not the same leprosy ridden pile of shite as iTunes, just in the cloud, that will be fine.
      neil.postlethwaite
      • RE: Apple iCloud: Nice incremental revenue boost, but halo effect more notable

        @neil.postlethwaite@... bravo
        bobjones2007
    • RE: Apple iCloud: Nice incremental revenue boost, but halo effect more notable

      @iluvmsft You are correct. But the statement "making iTunes even more powerful and useful by allowing access to content from any device, anywhere. " is it's only iTunes. I have a Mac and run Windows and Linux on it as well. I hate iTunes - it's interface is horrible and it just not a good tool, even on my Mac. My daughter has a Zune and it's interface is very nice, zippy and clean. Heck even WMP is better than iTunes.
      ItsTheBottomLine
      • RE: Apple iCloud: Nice incremental revenue boost, but halo effect more notable

        @ItsTheBottomLine

        WMP is better than iTunes? New one on me, buddy. Naturally the Windows version of iTunes is weak compared to the Mac version, but that is true of most any software and is hardly Apple's fault.

        iTunes basically does anything you could want to do with music and has more video than any other site on the 'net and costs nothing. But hate on it if it makes you feel better about Windows, because that is TRUELY PATHETIC.
        comp_indiana
      • Message has been deleted.

        Psdie
      • RE: Apple iCloud: Nice incremental revenue boost, but halo effect more notable

        @Techrepublic

        Because there really is no standard on Windows anyway. Mostly they just try to be 'mac like' as much as possible. But they are not.
        comp_indiana
      • RE: Apple iCloud: Nice incremental revenue boost, but halo effect more notable

        @comp_indiana - Typical apple idiot fanboy. iTunes for windows has a way larger userbase that the OSX version of it so therefore you will hear a lot of hate for that piece of crap software. Apple should stick at selling hardware because they suck at developing software, just look at the market and don't count their mobile os because then there are other mobile os's that way outnumber iOS like those installed in regular phones, cars, tv and so on. I personally hate using iTunes but you have to in order to use their hardware and without the software on your PC your mobile will not be as functional as it should be, and as far as cost goes, it doea cost alot dumbass you are purchasing music at a higher cost than everybody else but you are just to stupid and dilusional to see it, what a jackass. You would take it in the arse from Apple if they told you to bend over and don't deny it, you know who you are, don't you.....wel.....don't you?
        jerryelp
    • You said Zune? How funny!

      Now there's a company that hasn't had an original idea in about 15 years!
      @iluvmsft
      GoPower
      • RE: Apple iCloud: Nice incremental revenue boost, but halo effect more notable

        @GoPower I'm curious, what happened 15 years ago? Did they invest in Apple or something? :)
        observer1959
      • And you haven't had an original post in about the same time

        @GoPower

        So what are you trying to say? That you aren't too bright?

        We knew that already, tell us something original.

        Oh wait that's right - you can't.

        LOL! :)
        Will Pharaoh
      • RE: Apple iCloud: Nice incremental revenue boost, but halo effect more notable

        @GoPower - Yeah everybody knows Apple hasn't had any originals ideas since they stole the GUI from Xerox and now just copy hardware and software from everybody else such the MP3 player, smart phones, tablets none of which they invented just improved upon a stolen idea but beaing an Apple buttboy you wouldn't know that would you and as far as their desktop OSX, well they haven't made a dent in MS domination in those 15 years, still holding on to their 10% market share. Apples best idea was figuring how to screw over their so called loyal fanboys without them realising they are getting shafted, reamed and pretty much DDP. Don't drink the kool aid, Oh well stupid is as stupid does
        jerryelp
      • Who needs new ideas when...

        @GoPower
        ...The old ones keep earning you billions.

        Seriously though, no new ideas in about 15 years? Ha! In the IT world thats a double lifetime. Nobody is around in the software world for half of 15 years if they don't come up with some new REALLY GOOD ideas in a lot less then 15 years, so once again a member of the ABM crowd makes a clearly ludicrous statement, obviously without thinking about any real basis for it, and I guess figured no one would call him on it.

        Consider yourself called. And I wont say what exactly what it was you were called.
        Cayble