Stephen Reading - Technical Liason: First Analysis of Costs of Peer to Peer Distribution

This post will use rough math to show that switching to Bit Torrent is a bad idea.

Let’s start with the myth of the long tail. “March data for the 1.1 million songs of Rhapsody, [a streaming music service], shows a 22% no-play rate; another 19% [of songs] got just one or two plays” [1]. This is 41% of songs that are almost never being streamed. Let’s assume that since Rhapsody charges a subscription fee but doesn’t require users to pay for each song they stream that users are more likely to stream a less popular song on Rhapsody to try it out than they are buy it on iTunes. Using that logic it’s probably fair to assume that 50% of songs get no more than two downloads each month on iTunes. Let’s also assume the ratios roughly correspond to Rhapsody with 25% getting no buys, 12.5% one buy, and 12.5% two buys. At 100 kB/s it will take about one minute to download each song.

365days/12months*24hours/day*60minutes/hour=43800 minutes per month.
2 minutes/43800 minutes/month = .0045 is the percent of time that 12.5 percent of the library is being downloaded
1 minute/43800 minutes/month = .0023 is the percent of time that another 12.5 percent of the library is being downloaded
And 0 is the percent of time 25% of the library is being downloaded.
Overall this is .0017 %.

This means that on average, for 50% of the iTunes catalog you have a .0017% chance of having anyone else also be downloading the file to give you any of the benefits of a peer to peer system. I won’t even get into the chance that they will have a good enough connection to help noticeably.

Another quote from the article makes the situation even bleaker. “Ecast told me that now, with a much bigger inventory than when Mr. Anderson spoke to them two years ago, the quarterly no-play rate has risen from 2% to 12%” [1]. This means that iTunes’ library of 3.5 million songs [2] probably has a much higher rate of songs with extremely low demand than we just assumed compared to Rhapsody’s library of 1.1 million.

Given how low that percent chance is I believe it is fair to guess (and it is just a guess because I couldn’t find data) that at least 75-80% of the music available would get no benefit from peer to peer because it is downloaded so infrequently. Indeed iTunes is probably more like Amazon where “2.7% of Amazon's titles produce a whopping 75% of its revenues” [1] which would put the percentage at 97.3 percent of music that would get no benefit from peer to peer delivery.

Let’s calculate Apple’s current bandwidth costs. Last year they sold just over 1 billion songs according to their reports. We will keep it at exactly 1 billion songs and balance it by counting all of the tv downloads as being last year even though it started in October 2005.

1 billion songs x 5 MB = 4,800TB
50 million TV shows x 350 MB = 17,000 TB
1.3 million movies x 1.25 GB = 1,600 TB [3]

Gives us an estimate of somewhere around 24000 TB of bandwidth used last year. At $.65 per gigabyte [4], we get 16 million dollars in bandwidth fees.

Let’s assume Apple is going to switch to Bit Torrent, what are their costs now? Bandwidth is $.45 per gigabyte and storage $.2 per gigabyte [4], and 75% of the library has to be downloaded entirely from Apple, but that 75% makes up only 25% of the total downloads. 24000 TB *1024 GB/TB *$.2 + 6000 TB *1024 GB/TB*$.45 = 7.7 million dollars. This means that if Apple gives no incentives to users to upload from their machine, and impossibly spends nothing on bandwidth seeding the files, they will save 8.3 million dollars. To put that into perspective, raising the cost of a song from $.99 to $1 would make them 10 million dollars a year. $8.3 million is also roughly equal to 3% of what they spent on advertising the iPod in 2005 [6] or their revenue in 2 and a half hours, if you prefer [7].

However if they want the scheme to work they should expect to give incentives to upload. Since bandwidth used to cost $.45 per gigabyte after storage fees that is the maximum we can expect Apple to pay. This means at best a user would have to upload over 450 songs before they got a single one free.

Now consider what rate a customer would be willing and able to upload at, given that a higher upload speed will limit their download speed and that incentivizing uploads with money will lead to a situation in which there are far more uploaders than downloaders, leaving no one to send data to even if it’s desired. Consider that for every person who gets a free song from uploading, we need 100 people to download a song without uploading a single bit. For convenience let’s say I’m on a decently fast connection that the program connects people to and I manage to upload at 12 KB/s. At that rate it will take me about 24 hours to upload 1 GB (how convenient!), earning me $.45 a day and taking me two and a third days to earn my first free song. At 130 watts to power my computer and about $.15 per kilowatt hour, it costs me about $.02 an hour to have my computer running [5], or $.48 a day. At that cost, Apple will not even pay me back what it costs me in my electric bill to upload for them.

As technical liason I think it is very clear that Apple should not switch to Bit Torrent anytime soon, unless they naively expect users to be willing to upload files for free. I will, however, be spending the rest of the project trying to think up ways to make this switch work, under the assumption that Apple is not worried about the fact that it won’t save them any money, will in fact cost them money to develop a new type of DRM that works with peer to peer networking, and is just generally a dumb idea.


[1] It May Be a Long Time Before the Long Tail Is Wagging the Web. Wall Street Journal reprinted at http://www.ntoddblog.org/connected/2006/07/index.html. Jul. 26, 2006.

[2] http://www.apple.com/itunes/store/

[3] http://www.apple.com/pr/library/2007/01/09itunes.html

[4] M. Ratcliffe. “YouTube wildly profitable?” http://blogs.zdnet.com/Ratcliffe/?p=186 Oct. 4, 2006.

[5] http://michaelbluejay.com/electricity/computers.html

[6] I. Fried. “Apple spends a bundle on iPod ads.” http://news.com.com/Apple+spends+a+bundle+on+iPod+ads/2100-1047_3-5978598.html Dec. 1, 2005.

[7] “One billion: Apple's first quarter profits soar”. http://www.thinksecret.com/news/0701q1earnings.html Jan. 17, 2007