December 1, 2005 9:44 AM PST

Apple spends a bundle on iPod ads

How much do all those iPod commercials cost?

It's a bundle. Apple Computer spent $287 million on advertising in its last fiscal year, up nearly 40 percent from the $206 million it spent a year earlier. And the company spent $193 million in the year before that, according to its annual report, filed Thursday with the Securities and Exchange Commission.


U2 singer Bono was featured in
Apple's iPod ads last year.

The ad spending, though significant, is far less than the billions of dollars spent each year by the very largest advertisers--companies such as consumer products giant Procter & Gamble and automakers such as General Motors and Ford.

And, though its spending is a lot for a tech company, Apple has also seen a significant spike in its sales, particularly the heavily marketed iPod music player. The company sold $4.5 billion worth of the players in its fiscal year, a more than threefold increase over the prior year.

"They're getting great bang for the buck," said Piper Jaffray analyst Gene Munster. "To be who they are, it's important to have cool ads out there."

However, Munster said Apple also can depend on word of mouth to sell its products. "The reason they get such great leverage from their ad campaigns is that they have products that people want to talk about."

In addition to boosting its ad budget, Apple is investing more in research and upping its capital spending. The company said it plans to spend $390 million in capital spending this year, up 50 percent from the $260 million spent last year, much of which went to Apple's retail store effort. Research and development costs for last year were $534 million, up 9 percent from the prior year.

"Apple is clearly focused on continuing its innovation," said Sam Bhavnani, an analyst at San Diego-based market research firm Current Analysis.

Apple's regulatory filing also contains an update on various legal matters, including its ongoing dispute with Apple Corps, the Beatles' record label, as well as a host of other pending lawsuits. The Apple v. Apple case is slated for trial in a British court during the last week of March.

Meanwhile, Apple disclosed that it has settled a dispute with Tiger Direct, which sued the company in April for its use of the "Tiger" name to describe Mac OS X 10.4. "The parties have reached a settlement," Apple said in the filing. "Settlement of this matter did not have a material effect on the company's financial position or results of operation."

An Apple representative was not immediately available to comment further.

16 comments

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So when you buy an ipod...
You are essentially paying much of your money on just advertising. How does that make people feel?

I know that it drives me nuts, and when one buys a car, the value depreciates immediately when you take it off the lot, solely because so much of the car's value is just in how much was spent on advertising.

Crazy.
Posted by mjm01010101 (126 comments )
Reply Link Flag
Yeah..but what ya gonna do?
Yes, it sucks but what ya gonna do? I guess you could build your own mp3player. But it probably wouldn't be as cool


I don't have an iPod..but I sure want one. :)
Posted by Leppard (41 comments )
Link Flag
Doesn't Bother Me
Even assuming their entire ad budget is for iPod, the percentage of sales spent on ads is still less than 6.4%.

I just bought a $300 5G iPod, so that means I contributed about $19 dollars toward their ad budget.

Does that bother me?

Not at all. Because that small investment has helped make the iPod sufficiently popular that it's now more than just an MP3 player. It's also a portable audio/photo jukebox that integrates with my car stereo, home stereo, xBox 360, clock radio, camera, TV, etc. To me, that's worth an extra $19.
Posted by open-mind (1027 comments )
Link Flag
Re:
No ... you are not essentially paying much of your money on just advertising. Where in the world did you get that load of garbage from.

Oh, i see, you must think the cost of the ipod is really really cheap, and you could probably pick one up for 150 usd.

What is crazy, is your conclusion of the story.
Posted by Thomas, David (1947 comments )
Link Flag
Not just iPod
Ever see a Dell commercial? A Coca-Cola commercial? An ad for
the latest movie?

Whenever you buy a Coke, or see a movie, or buy any name-
brand product, you're paying for advertising. Unless you buy
nothing but "generic" products--store brand food, consumables
and clothing, whitebox PCs, no-name electronics, open-sourced
software or shareware, and, of course, a used car bought
directly from a previous owner--your hard earned money is
going into the pockets of ad agencies and media companies.

Strange how this "capitalism" thing works, isn't it?
Posted by aabcdefghij987654321 (1721 comments )
Link Flag
Such a tired misconception
Why do people still believe this old canard?

No matter how much Apple -- or any other company selling any
other product -- spends on advertising, the price of a product is
dictated by market forces. This is obvious in the case of the iPod
since the price/value of the product has improved as Apple has
increased ad spending. Or to put it another way, Apple is
spending a lot more on ads, but when you buy an iPod today you
get a lot more for your money than when the first iPod was
introduced. ("More" isn't just storage size. It is also size, color
screen, and reliable memory.)

If Apple did not advertise iPods it would sell fewer of them. The
cost to sell each iPod would then be greater since the costs
decline with each unit sold (up to a certain point).

Apple spent $290 million on ads in the most recent fiscal year.
Obviously not all of that ad spending was to sell iPods, but if it
were, less than 7 percent of the $4.5 billion Apple earned selling
iPods was allocated to ad spending. Since iPod sales increased
by far more than 7 percent in that fiscal year, it is safe to
conclude that the ad spending increased the company's revenue
far in excess of its total ad spending. If Apple had not spent the
ad money, it would have sold far fewer iPods, and the marginal
cost of each unit would have been greater. For instance, by
selling more units Apple has been able to generate more
revenue with which to buy memory at a favorable price. Apple
has made a huge recent investment in future iPod memory,
which has been lamented by competitors for the price/
availability advantage it gives Apple. Fewer units sold = higher
memory costs. (There has also been a "halo" effect of increased
Mac sales associated with the popularity of the iPod, magnifying
the value of Apple's ad dollars.)

The evidence is unequivocal. Apple saved iPod buyers money by
heavily advertising the players. People in business know that
advertising is not a whimsy, it is essential for survival. Apple
would be crazy to not advertise the iPod heavily.

As for car depreciation, it varies greatly with the perceived value
of the car. A BMW or Honda depreciates much less quickly than a
Hyundai or a Chevy. That has virtually nothing to do with the ad
dollars spent by car companies, and a lot to do with factors like
reliability and safety. Depreciation is meaningless unless you
plan to sell the car. If you consider resale value to be important
(which many people do not), you would buy a car that doesn't
depreciate rapidly or greatly, regardless of how much the car
had been advertised. (MJ doesn't even bother to investigate how
much of the cost of a car is due to advertising.)

New homes are also heavily advertised, yet they usually
appreciate in value? Why? Because they don't quickly deteriorate
to rust like even the better made cars do.

The simple alternative for someone who believes what MJ does
would be to buy products that are advertised little or not at all.
See what value those products offer for your consumer dollar.
Can you buy a similar product that is a better value than an iPod
without the "cost" of Apple's ads? What is the name of that
product?

The irony is that MJ, and those who agree with him/her, discover
most of the products that annoy them because those products
are heavily advertised.
Posted by nicmart (1829 comments )
Link Flag
Windows XP experience ads $$$?
How much is Microsith spending on maintaining their MSOS monopoly by creating a whole slew of new "Dicover Microsoft XP" etc. ads???

WHY? They are a monopoly.

Maybe it's because the majority of Windows users are NOT upgrading to WinXP, since the majority of them are using Win98/2000 according to numerous tech news reports (C/Net, etc.)

With FogHorn-LongHorn-AstalaVista 2007/08/?? OS going "public gold", for sale in the future, they have to create the buzz somehow today inorder to keep the monopoly fresh in the minds of the MS Drones so they don't switch to Unix/Mac OSX/Linux/Open Source/OpenOffice/FreeOffice/StarOffice/Google....
Posted by Llib Setag (951 comments )
Reply Link Flag
How is this relevent
to this story???
Posted by Charleston Charge (362 comments )
Link Flag
They're not a monopoly. There's Apple & Linux
The usual idiotic anti-Microsoft rant. Windows is not a monopoly. Just ask anyone with a Mac or anyone who uses linux. But of course, facts don't matter to some people...
Posted by lingsun (482 comments )
Link Flag
Lack of Mac ads.
The last Mac ad I saw was the one where a G5 (or was it a G4) came
crashing through someone's home. I could design a better Mac ad
than the maroons at the Apple agency.
Posted by sirron33 (16 comments )
Reply Link Flag
iPod Advertising dollars?
Auto industry advertising dollars may seem huge, but they are
not at all related to the depreciation of American Auto
manufacturers. They depreciate because the products' quality is
poor. I'm a life long Honda owner, and NONE of my hondas have
depreciated like the American crap that is see driving next to
me.

iPods don't depreciate in value, nor is it 10% of the cost of the
iPod. that's less than the industry average across all industries
other than pharma (15% or more). For a company of any size to
spend less than 10% of per sale is fantastic. so, $30 of your
iPod went to the cool ads, so what. Enjoy them. Know that you
are part of POP culture.
Posted by greatscot (1 comment )
Reply Link Flag
Ummm, no...
All motor vehicles take a hit in their value when they're bought. The
moment you purchase the car it's "used" and can't legally, in the
United States anyway, be sold as new. This is true of every make
and model of motor vehicle sold in the world. Anyone who tells you
different is just blowing smoke.
Posted by nightveil (133 comments )
Link Flag
Flu$h it down the toilet
What's the point? You can't find any iPods anywhere. Don't waste your money, Apple. You're a success. Enjoy it.


<a class="jive-link-external" href="http://cgi.ebay.com/ws/eBayISAPI.dll?ViewItem&#38;item=8239236611&#38;rd=1&#38;sspagename=STRK%3AMESE%3AIT&#38;rd=1" target="_newWindow">http://cgi.ebay.com/ws/eBayISAPI.dll?ViewItem&#38;item=8239236611&#38;rd=1&#38;sspagename=STRK%3AMESE%3AIT&#38;rd=1</a>
Posted by amosxmos (6 comments )
Reply Link Flag
287million for a national ad campaign is NOT a bundle
Do a little bit, ... no wait ... do ANY research.

eom
Posted by Thomas, David (1947 comments )
Reply Link Flag
 

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