Trading Off the Value of Apple’s Music Monopoly

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iPod Nano 2G

In 2001, Steve Jobs effectively resurrected Apple (NASDAQ:AAPL) with the unveiling of his blockbuster iPod and iTunes platforms. Amid the dot-com bust, Jobs assembled a then-unfathomable consortium of Silicon Valley engineers, enigmatic recording artists, and powerful music industry executives beneath one entertainment application.

Apple’s technology facilitated the shift toward digital players as the preferred medium for sharing, enjoying, and even creating music. Today, Jobs’ DNA is built into an ecosystem in which Apple monopolizes its role of broker-dealer between musicians and consumers. Investors can leverage the goodwill of this music monopoly to power long-term alpha returns above the S&P 500 Index.

Define Apple’s share of music

Apple categorizes music sales according to “iPod” and “Other Music Related Products and Services.” For its 2013 fiscal year ended September 28, Apple’s exposure to music directly accounted for $20.5 billion out of $170.9 billion in total revenue. For fiscal 2013, Apple did slog through respective 25 percent and 21 percent year-over-year declines in iPod unit sales and revenue.

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