April 28, 2003 12:16 PM PDT

Apple unveils music store

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SAN FRANCISCO--Apple Computer on Monday unveiled its latest line of digital music products, including a long-awaited Internet music store and ultrathin versions of its popular iPod portable MP3 player.

Apple CEO Steve Jobs took the stage at the Moscone Convention center here and pronounced a new era for digital music consumption, saying that other online music services are either illegal or unattractive.

"We were able to negotiate landmark deals with all of the major labels," he said of the company's newly launched iTunes Music Store. "There is no legal alternative that's worth beans."

Apple's music store launch has drawn keen interest. Despite its paltry share of the home PC market--about 3 percent--the company has set industry benchmarks before, notably with the iPod.

The iTunes Music Store is launching with a library of 200,000 tracks, with participation from all five of the major record labels. In addition, the store will list exclusive tracks from 20 artists, including Bob Dylan and U2.

The songs cost 99 cents each to download, with no subscription fee, and include the most liberal copying rights of any online service to date. Jobs has been an outspoken opponent of so-called digital rights management (DRM) in the past, arguing that limitations on digital music will undermine the market for legitimate content.

The Apple CEO pitched the music store as falling between Napster and fee-based services such as Rhapsody and Pressplay. Until it was shut down in 2001, Napster allowed people to download songs at no cost from other PCs connected to the Internet--which, Jobs emphasized, was stealing. Pressplay and Rhapsody allow users to access music for a monthly fee.

Songs from the iTunes store can be transferred freely to iPod players, burned on unlimited numbers of CDs and accessed on up to a maximum of three Macintosh computers. Each song in Apple's store can be previewed for 30 seconds at no charge. It is currently available only in the United States.


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Songs are available only for the Macintosh running the OS X operating system and for iPod, although older versions of iPod require a software upgrade. Jobs said a version for Microsoft's Windows operating system is in the works and expected to launch by the end of the year.

iTunes 4, Apple's music jukebox for the Mac, will integrate with the music store.

The software will be able to read music files encoded with AAC, a format that Apple says "compresses much more efficiently than older formats like MP3...while delivering quality rivaling that of uncompressed CD audio." All the songs in the Apple store will be encoded with AAC, although iTunes will also support MP3.

iTunes 4 will integrate with Apple's networking technology, called Rendezvous, and will allow several Mac users on a wireless network to share their music collections. The music is streamed rather than downloaded and is accessible only while another person is logged onto the network.

Jobs on Monday also unveiled new ultrathin iPod models, advertised as being as thick as two CD cases together. The devices come with 10GB, 15GB and 30GB of storage, costing $299, $399 and $499, respectively.

The higher-end iPod versions include a new docking station to connect easily with PCs, as well as an audio-out socket that can be used to connect the devices directly to home stereos.

Musical differences
The releases come in the wake of a court ruling last week that--for the first time in the United States--handed a defeat to the record labels and movie studios in their attempts to stamp out online file-swapping services.

A federal judge in Los Angeles ruled Friday that file-trading services Grokster and Morpheus were legal technological tools, protected by law in much the same way as videocassette recorders or copy machines. The ruling did not serve as an endorsement of copyright infringement that takes place using that software, but will certainly make it harder for copyright holders to rein in the services.

Apple's service breaks from the pack of most recent digital music services, which have offered large or unlimited amounts of music--although with restrictions on how or where it can be used--for a single monthly fee.

The subscription model has been seen by many analysts as one potential response to file-swapping services such as Napster and Kazaa, where a vast amount of music is available at no charge. The subscription model allows consumers to sample new music in much the same way as they can with free file-trading networks, without having to pay for each song.

While the subscription model has been slow to pick up customers over the past year, it has begun to gain ground in recent months as record labels have allowed more music to flow into the plans and have permitted CD burning and similar features. RealNetworks agreed to buy San Francisco company Listen.com last week in a cash-and-stock deal worth $36 million in order to take over that company's Rhapsody subscription service.

Apple's model is more like earlier, largely unsuccessful plans by companies like Liquid Audio or the record labels themselves. Those pay-per-song services generally charged high prices--sometimes as much as $3.99 per song--and had much smaller selection than what Apple is offering, however.

"I think 99 cents is the magic number. I think that's an impulse buy," said P.J. McNealy, an analyst for Gartner G2, a division of Gartner Research.

The new Mac-based service is also integrated tightly with the company's iTunes music software and the popular iPod MP3 player, an advantage that no other music service has had to date.

Paying the piper
Hard research on what digital music lovers actually want or do is still slim, but some information is available that indicates different computer users might use both services.

A recent study by Jupiter Research indicated that 47 percent of online consumers in general would buy a digital version of a single online without copy restrictions for 99 cents, although the study did not say how many they would buy at the price. The same study said that 49 percent of file sharers--those using services such as Kazaa--would buy a single for 99 cents.

Internal metrics from Listen.com, the company that runs the Rhapsody subscription service, indicates that the all-you-can-eat plan is also popular.

According to the company, just 13 percent of its "tens of thousands" of subscribers have burned a song to CD in the last month--a process that also costs 99 cents per song, but gives the subscriber permanent access to the track. The average Rhapsody subscriber listens to about 200 different songs per month, the company said.

Apple's flirtation with the music business took a strange turn earlier in the month, when rumors began flying that the company was interested in buying Universal Music Group, the largest of the big five major record labels.

The company said it had not made a bid for acquisition or investment in any label, but did not rule out a future investment.

Jobs has spent considerable time backpedaling from the company's onetime marketing slogan, "Rip. Mix. Burn." That earlier advertising campaign had angered record executives, but on Monday the Apple CEO put forward an antipiracy face, criticizing free file-swapping programs.

"On the good side, (services like Kazaa) are instant gratification, showing the Net was built for music distribution," Jobs said. "On the downside, it is stealing, and it's best not to mess with karma."

 

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