A closer look at the estimated $1.3 billion operating costs of iTunes7
According to Apple's numbers given at WWDC, iTunes has served up 15 billion song downloads, 130 million book downloads, and 14 billion app downloads. All of those numbers are huge, but need to be put into context of course. iTunes opened up for music sales in April 2003, so that's 15 billion song downloads in a bit over 8 years. Meanwhile, the App Store has been active for just under 3 years and has hit 14 billion app downloads. And, of course all of these numbers are downloads, not purchases. All of that to say that iTunes does a lot of business. The storage space and servers needed for all of the music, video, books and apps available in the store are one thing, but the bandwidth is another thing completely.
The missing factors
The trouble with those calculations are that they don't take into account two big things: books and video. iBooks and video may not add much revenue compared to music and apps, but the storage and bandwidth needed for video can quickly overtake music just because of the size of files. Unfortunately, Apple didn't release numbers for TV shows and movies at this year's WWDC. As of last year, the total downloads for TV shows stood at 450 million TV episodes and 100 million movies. So, even if the video service is far smaller in number of downloads, that could potentially add a lot to operating costs. Apple's own support page estimates that while a 4 minute song is about 4 MB, a 45 minute TV show is 200 MB for standard def and 600 MB for HD, and a 2-hour movie is 1-1.5 GB for SD and 3-4.5 GB for HD. That's a lot of data to be stored and processed.
If we really look at the numbers that Dediu comes up with, they don't really mean anything. Adding in iBook sales and video sales adds revenue to the iTunes ecosystem, which changes the numbers if we do assume Apple's claims. And, as far as operating costs, video alone adds a huge burden as far as storage, bandwidth and processing. Combine that with the assumption that all revenue is put back into operating costs, a claim which can't be verified, and you get numbers that are impressive and sound good, but may not be anywhere near accurate. To be sure, Apple spends a huge amount of money operating iTunes, and maybe we'll see the numbers on that some day. But, these are not those numbers.