Apple's deals with music labels hint at sub service

Reports of licensing agreements put spotlight on 'jukebox in the sky' service, say experts

Apple has struck deals with three of the top four music labels that will let consumers access their digital music collections from mobile devices like the company's iPhone, several reports said this week.

The agreements also hint at the possibility that Apple will roll out a digital music subscription service that would create a "jukebox in the sky," a move that could push music revenues to levels last seen more than a decade ago.

According to anonymous sources cited by CNET News Wednesday and by Bloomberg on Thursday, Apple has wrapped up negotiations with EMI Music, Sony Music Entertainment and Warner Music Group.

The remaining holdout: Universal Music Group, the largest of the four.

Bloomberg reported that Apple is close to wrapping up a deal with Universal.

"This sounds like a public relations balloon," said Aram Sinnreich, a media professor at Rutgers University. "Apple's leaking news of these deals to put pressure on Universal to get the same deal that the other labels have agreed to."

If the reports are accurate, Apple could soon launch a label-authorized cloud service to compete with the similar, but unlicensed, services -- dubbed "lockers" -- already in play from Amazon and Google.

With a cloud service in place -- likely part of Apple's MobileMe, which analysts believe will be revamped this summer -- customers will be able to play tracks from their iTunes collection over the Internet, giving them anywhere-access to their music from iPhones, iPads, iPod Touches and Macs while away from home.

Analysts applauded the news, but expected Apple to do more with the licenses than just duplicate Amazon's and Google's in-the-cloud music lockers.

"If the labels are ready to play ball and embrace a fundamentally new model, licenses can make a huge difference," said Sinnreich.

Sinnreich believes that licenses aren't required for a locker service -- he noted that although the labels were displeased with Amazon's March launch of Cloud Drive, they haven't sued either Amazon or Google -- and suspected that Apple's negotiations were for more than simply online storage.

That "more" could be the long-awaited subscription service, which would let customers play not only the tracks they already own, but millions of others by paying a flat monthly fee.

Sinnreich sees an Apple-driven subscription service as the Holy Grail of digital music, and in his eyes, one the labels should accept.

"The labels need a genuine celestial jukebox, one that not only offers streaming music, but recommendations, on-demand radio, community and social networking features, video and downloads," said Sinnreich.

And Apple is the best partner to do that.

"If Apple is the one who can offer an unlimited subscription music service, they'll become the leader," said Ezra Gottheil, an analyst with Technology Business Research. "Apple shows all the signs of understanding the music listener better than anyone else among the competition."

Sinnreich agreed.

"Apple's strategy for the last seven years has been, 'Let's make the ocean smaller [by going to downloads] and we'll be the biggest fish in that ocean,'" said Sinnreich. "But by going to a subscription service, the ocean gets much, much bigger again."

That's key, said Sinnreich. The only way labels can recover revenues that they've lost in the last 12 years to single-track purchases via iTunes is to turn toward a subscription model.

"The download business was never a good business for the labels," Sinnreich argued. "It was the number one reason for the decline in sales. The labels got bamboozled by Apple with iTunes; they should have gone straight from [CD] album sales to subscription."

An Apple-backed subscription service has the potential to bring in enormous revenues -- billions, Sinnreich said -- that could rival the $14 billion the music industry made at its peak in 1999.

"Within five years, cloud music could be worth more than that," Sinnreich said. "But it has to be done well. It has to be so drop-dead simple that it's not worth [consumers'] effort to download for free or for $.99 or $1.29."

Calling the potential "massive," Sinnreich declined to say an Apple subscription service was inevitable. "But it's as close to inevitable as you can get."

He speculated that the price for such a service could be as low as $5 per month, half the $10 monthly fee Rhapsody charges for its lowest-priced all-you-can-stream service.

"That's too high, which is why Rhapsody has had trouble getting millions of subscribers," said Sinnreich. "At $5 for a plain vanilla service, and assuming half of Americans [subscribed], which is really the number of music buyers and listeners, [an Apple service] would generate 60% of that $14 billion."

Both Sinnreich and Gottheil said it was possible that, with licenses in hand, Apple could launch a music locker or subscription service as early as next month, when the company holds its annual developers confab.

Apple's Worldwide Developers Conference (WWDC), which starts June 6, has been a platform in the past for major new product announcements. And with the next iPhone -- called iPhone 5 by some, iPhone 4S by others -- apparently slated for a September debut, a music-related announcement would fill the gap.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer , or subscribe to Gregg's RSS feed . His e-mail address is .

Read more about e-business in Computerworld's E-business Topic Center.

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Gregg Keizer

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