Isn’t the loss more than $1/movie? If they need to pay $16 to the movie studios, they still need to pay for running costs (bandwidth, support, development of the iTunes application etc.). I’m sure they’ll earn it all back once it becomes a success though.

I didn’t think of it that way but yes, I’m sure they’re taking a much larger loss than $1.00.

Shannon Cross – Cross Research

Okay, and I don’t know, Tim or Peter, could you give us an idea on your goals for iTunes rentals? How should we think about the success of that business and is it more a way to drive incremental Apple TV sales or are you looking at it more from a profitability standpoint for that specific unit?

Peter Oppenheimer

We just introduced it. We think customers are really going to love it but we’ll have to see. Our objective with the iTunes store is to run it just a little above break even and we think that it helps us to sell iPods and Macs and that is really our strategy.

I’m sure Apple can recoup the $1 / movie loss in other place…says iPods, iPhone, MacBook Air, need I say more?

At this point they probably aren’t even trying to recoup losses, they’re probably just trying to make themselves the dominating player in the digital movie arena so that they can control prices.