iTunes store - because of, not with

The NYT repeats a familiar incredulity about iTunes store sales but misses the point about Apple. Apple is a hardware company — it makes its money from selling good hardware with good margins. The iTunes Store has always been pretty close to revenue neutral for Apple - the vast bulk of its sales revenue goes through to the Record Labels or TV companies. With Apple absorbing hosting, payment processing and customer support too, I'd be surpised if it makes enough to cover the iPod's advertising budget.
This has an interesting beneficial effect - because Apple cares more about the iPod than the Store, they have embraced Podcasting (equally revenue neutral, and a good way to fill iPods) and kept the iTunes Application's CD-ripping abilities (while its ability to sync to non-Apple mp3 players has withered away). What is becoming clear is that DRM, even Apple's DRM with circumvention built-in, does destroy value for customers. The labels are realising that they inadvertently handed the keys to their music to Apple, and so are moving towards selling non-DRM'd files instead.
Apple's hardware sales model is going to be put to the test with the iTV set-top video playback box due next year. Other companies are bundling such boxes with cable TV, in return for a subscription. BT Vision is trying a different tactic - a set-top PVR that uses free over-the-air TV along with the ability to purchase Video too, but bundled with their broadband internet service.
The question for both of these is how well they will enable the playback of amateur media, which can be indistinguishable from 'bootlegs', as well as video from the big media content the companies have partnerships with.
Watching my boys play videos with their friends the other night, they didn't make hard distinctions between the Harry Potter 5 trailer, silly internet flash animations, Pachelbel's Canon in D played on guitar, and their own home-made videos. All were media to share with each other and talk about.

Technorati Tags: Apple, iPod, iTunes, Live TV is Dead, long tail, marksbrothers, video