Apple's iPod Still Has the Touch - Wall Street Journal

June 27, 2014 2:00 p.m. ET

The iPod may seem like a side act for Apple AAPL +1.19% Apple Inc. U.S.: Nasdaq ^$91.98 +1.08 +1.19% June 27, 2014 4:00 pm Volume (Delayed 15m) : 41.21M AFTER HOURS ^$91.92 -0.06 -0.07% June 27, 2014 5:59 pm Volume (Delayed 15m): 22.74M P/E Ratio 15.29 Market Cap $548.10 Billion Dividend Yield 2.04% Rev. per Employee $2,185,850 06/27/14 Apple's iPod Still Has the Tou... 06/27/14 The Fashion and Tech Industrie... 06/26/14 GoPro Shares Jump 31% in Debut More quote details and news » these days. But the company has good reasons for keeping the music-player business humming.

Apple updated its family of iPod Touch models this past week, adding more colors and the iSight camera to the entry-level version. It also cut prices across the line, reducing the price of the 16-gigabyte version by $30, to $199, and cutting $100 off the price tag of the largest version sporting 64GB, to $299. Given that the iPod accounted for just over 1% of Apple's revenue over the past two fiscal quarters, these changes likely won't move the needle much for the business overall.

But the iPod Touch helps to extend the company's iOS operating software beyond smartphones and tablets, often to younger buyers not yet ready for (or able to afford) those other devices.

The recent move is also notable given how disciplined Apple has been about maintaining pricing. Unit sales of the iPod plunged more than 50% in the past two quarters compared with the same period the previous year. Yet the average selling price in that period slipped by only 4% to about $163.

The hefty $100 cut to the price of the 64GB device is noteworthy. Larger memory units can hold more music, movies and games, so cutting the price of the 64GB device could boost sales of iTunes and App Store content that is becoming more important to Apple's growth.

And boosting sales of higher capacity hardware can have an outsize effect on profits. The price difference between the 16GB iPod Touch and the 64GB version means Apple is effectively upselling 48GB of memory for $100. In comparison, 64GB memory cards for computers and other devices cost as little as $30.

With its controversial acquisition of Beats Electronics announced less than a month ago, Apple is clearly thinking different about its music business. Keeping the iPod in the mix makes sense.

Write to Dan Gallagher at dan.gallagher@wsj.com

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