AN FRANCISCO, April 25 — Apple
Computer plans on Monday to introduce a digital music service,
according to industry analysts. It is a move that thrusts the
company into the middle of a contentious and technologically
challenging area of digital commerce.
Apple itself has provided few details of its new service, but
people in the music industry and analysts said users would be
charged 99 cents to download individual songs drawn from the
catalogs of the big record labels. They said that once users
download the music, they would be able to listen to it on their
computers or transfer it to a portable music player.
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The music industry was given a new impetus to develop its own
channels for online music last week when a federal judge in Los
Angeles ruled that two file-sharing services, Grokster and
StreamCast Networks, were not guilty of copyright infringement. In
the face of the availability of so much free music online, the
industry has yet to offer an alternative service that consumers seem
willing to pay for.
Unless Apple unveils something radically unexpected, its service
will not represent a marked difference from some of the Internet
services already in existence. The announcement, however, will bring
a big-name company into the mix, presenting a potentially
significant change in what has been a tense relationship between
consumer electronics makers and the music industry.
Computer and electronics companies see digital music as a way to
drive sales of their hardware, and they have pushed hard to expand
its availability. But the recording industry has battled technology
companies on Capitol Hill, asserting that new digital products make
music easy to copy and share over the Internet.
Music executives were unhappy when in 2001 Steven P. Jobs,
Apple's chief executive, kicked off the "Rip, mix, burn" ad slogan,
which encouraged people to transfer music from compact discs onto
computers and create their own custom CD's.
Now, though, they seem comfortable with Apple's new strategy.
Hilary B. Rosen, the chief executive of the Recording Industry
Association of America, said she believed Apple had struck an
industry-friendly balance. Apple's music service "has compatibility
with a hardware product that is elegant and easy to use," said Ms.
Rosen, who said she planned to attend Apple's news conference. "The
Apple system has the potential to do for music sales what the
Walkman did for the cassette," she added.
That prospect would certainly be welcomed by Apple, which is
trying to solve its marketing problems. The company's share of the
personal computer market has steadily eroded about 3 percent. But it
still has a loyal following, little if any debt, and around $4.5
billion in cash. Moving into the digital music business may be a
smart way to expand beyond hardware, some industry analysts say.
The company's fortunes "are tied so closely to Apple hardware,
and if that hardware continues to slide, they're done," said Rob
Enderle, a personal technology analyst with Forrester
Research. "This is a hedge," he said. "They want some products
they can sell into a broad market."
Indeed, the company is expected to announce the next generation
of its iPod portable music player on Friday, said Brett J. Miller,
an industry analyst with A. G. Edwards & Sons, an investment
firm.
Apple's foray into a digital music service comes at a time when
combining music and the Internet has been a struggle. The concerns
of the music industry have not diminished despite the demise of
Napster, the free online sharing service used by more than 50
million people to download songs over the Internet. It shut down in
2001 after being sued by the music industry for abetting copyright
infringement.
But since then, a new generation of free music services, most
notably KaZaA, have arisen and are now used by tens of millions of
people to share music files over the Internet. The music industry
has also sued to shut down KaZaA.
In addition to free file-sharing services, paid music services
have emerged that charge users to listen to songs over the Internet
through streaming and to download the songs to computers. These
include Pressplay and MusicNet, both of which have financial backing
from the record labels, and several independent services that
license music from the record labels.
The offerings vary, but a typical service might charge $9 a month
for unlimited streaming and downloading to a computer, but does not
allow users to burn the songs onto a CD or transfer them to a
portable device. Some services also charge monthly subscribers an
additional 99 cents for each song that they want to burn.
While offerings vary among the existing services, what is clear
is that their popularity, while growing, remains meager compared to
the popularity of the free music downloads. Lee Black, a digital
media analyst for Jupiter Communications, estimates that the paid
music services have a total of no more than 350,000 subscribers.
Even so, competition is increasing in this market. RealNetworks,
which owns a portion of MusicNet, announced last week its plans to
spend $36 million in cash and stock to acquire Listen.com, which
offers an online music service called Rhapsody.
Technology and music industry analysts said they expected that
Apple's service would allow users of Macintosh computers to download
songs into iTunes software. Users then would be able to listen to
songs on the computers, and also download them to iPods. It is
unclear whether the service would be available to users of
Windows-based machines.
But Philip Leigh, a digital media analyst with Raymond James
& Associates, an investment banking firm in St. Petersburg,
Fla., said the presence of Apple in the market could give a lift to
digital music services beyond the confines of Apple's limited user
base. The reason, he said, is that if Apple starts advertising the
sale of music, "they'll be advertising to the whole world."
"It will raise the consciousness of the public that there are
legitimate alternatives to KaZaA," Mr. Leigh said. He added that
Apple's experiment would also allow the music industry to see how a
piecemeal 99-cent offering — without connection to a monthly
subscription — works in the relatively small universe of Macintosh
users.
And he said the move could mean a long-term shift for Apple.
"This signals a transformation of Apple into a digital media
company," Mr. Leigh said. "Within 10 years, we'll look back and say
this is when it mutated."
But Mr. Miller of A. G. Edwards said the company remained on
solid footing as a hardware company. He said Apple, like others in
the industry, was suffering from the weak economy.
While a music service could increase demand for Apple hardware,
Mr. Miller noted that it was impossible to know the overall effect
on the bottom line until Apple divulges specifics about the service
and what royalties it must pay to record labels.