Even if it costs 1.3 billion to run a year Apple's profit from quarter to quarter vastly dwarfs that. Sort of like how it used to cost microsoft to create their xbox platform. I think it is worth it.
As a gamer I was thinking about the exact same thing. When assessing this model do you think it matters that Microsoft has a monopoly on Xbox games, whereas Apple has a number of competitors in terms of App and Music services?
Who are the competitors to Apple for iOS apps and games?
Android and BlackBerry? On that metric,XBox has competitors in the form of PS3, Wii etc. Apple does have a monopoly on iOS games and apps.
I suppose that's true, I think I was looking at things with more of a lens towards music.
Anecdote: When I buy music, I either buy it from Amazon MP3 or direct from the artist via Bandcamp.