Research group NPD recently named iTunes the second-largest U.S. music retailer, and the company has just revealed that its store has passed the 4 billion download mark. So Billboard decided to crunch some numbers to see whether the conventional wisdom that Apple makes money from iPods—not downloads—still holds true.

While iTunes did not respond to a request for comment, its music suppliers think the store is making money on a cash basis, if not an accounting basis. Indeed, they say iTunes has told them its store is profitable.

The Cupertino, Calif.-based company announced it had sold its 2 billionth download Jan. 6, 2007; its 3 billionth July 31, 2007; and its 4th billion Feb. 27. As such, Billboard estimates that the store sold 1.7 billion downloads last year, and that of that amount, 940 million tracks were sold in the United States and 732 million were sold abroad, as the company operates stores in 21 other countries.

If all 1.7 billion downloads were counted at the U.S. price of 99 cents, they would equal $1.7 billion in revenue last year. But when it repatriates sales revenue from other countries, it likely enjoys a bump thanks to exchange rates. For example, in the United Kingdom, iTunes charges 79 pence per track download, but that equals $1.56, according to Web site oanda.com.

So when revenue is brought back to the States, Billboard estimates iTunes' music download revenue at $1.9 billion last year, which is in line with the $2.7 billion in revenue it reported during calendar year 2007 for other music-related products and services. Those consist of iTunes Store sales, iPod services and Apple-branded and third-party iPod accessories.

At a 30% profit margin, the gross profit equals...

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