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Apple Reports Falling iTunes Music Revenue

That $3 billion Beats acquisition is making a lot of sense.

Apple Reports Falling iTunes Music Revenue
[Photo: Flickr user Garry Knight]

In 2003, when it seemed like the music industry could collapse with the ease and proliferation of digital pirating, Steve Jobs debuted the iTunes Music Store, which allowed music fans to buy and download single tracks instead of whole albums.

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Eventually, Napster, Kazaa, LimeWire, and other peer-to-peer file-sharing services lost momentum. Many point to Jobs as savior of the music industry (the move also solidified the iPod, which recently met its end, as a wildly successful music player in the early 2000s). But it appears the concept of purchasing music is becoming dated as well. In Apple’s annual 10-K filing with the Securities and Exchange Commission, the Cupertino, California, company noted “a decline in sales of digital music.” It did not break down a figure specifically for music sales, but a report from the Wall Street Journal puts the drop at 13% to 14%.

Overall, though, Apple’s digital sales are on the rise, fueled largely by app revenue. In the 2014 fiscal year, Apple reported $18.06 billion in revenue for iTunes, software, and services, making up 10% of total net sales. This is a 13% increase from 2013’s $16.05 billion in software and services revenue. With declining music sales as a backdrop, the $3 billion Beats acquisition from earlier this year is starting to make a lot more sense.

The annual report also revealed growing demand for Apple products in China. In 2014, $29.85 billion, or 16% of its revenue, came from China, a 17% increase from the year prior. The company explains:

Growth in net sales and unit sales of iPhone was especially strong, driven by the successful launch of iPhone 5s and 5c in Mainland China and Hong Kong in September 2013, the successful launch of iPhone 6 and 6 Plus in Hong Kong in September 2014, increased demand for the Company’s entry-priced iPhones and the addition of a significant new carrier in the second quarter of 2014.

Apple has been gunning for the China market in the last few years. When it unveiled its line of iPhones last fall, it included an entry-level iPhone 5C (it had hoped a lower-priced model would appeal to Chinese buyers, but overall sales of the 5C have been disappointing) and its then-flagship iPhone 5S–the latter of which came in gold. Looking to boost sluggish tablet sales, the company earlier this month debuted a refreshed iPad Air and iPad Mini, both of which are also available in gold, hoping Chinese buyers will continue to bite.

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About the author

Based in San Francisco, Alice Truong is Fast Company's West Coast correspondent. She previously reported in Chicago, Washington D.C., New York and most recently Hong Kong, where she (left her heart and) worked as a reporter for the Wall Street Journal

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