Digital Media

Apple has acquired struggling streaming music service Lala, an Apple spokesman told CNET News on Sunday.

Apple spokesman Steve Dowling confirmed the acquisition but did not disclose the terms of the deal or what the company intends to do with the 4-year-old Lala. The company scans users' hard drives and creates a duplicate music library that owners can access from Web-enabled devices. The company also sells songs for a dime each.

CNET News reported Friday that Apple was close to finalizing the sale and that one of the reasons Apple was interested in acquiring Lala is to obtain some of the company's payment and fulfillment systems, which a source with knowledge of the talks said could save Apple money.

However, it's unclear whether Apple may also be planning to launch some kind of streaming-music or so-called cloud storage feature.

The New York Times reported that Apple was approached by Lala after the company concluded that reaching profitability was unlikely. All Things Digital reported that Lala was acquired for a sum that meant a loss for its investors.

If things keep going this way, pretty soon there won't be any digital music space to cover. Many of the players around a year ago are gone: Ruckus and SpiralFrog closed. MySpace is gobbling up iLike and soon Imeem. Apple got Lala.

The frontrunners now appear to be Pandora, Amazon, Spotify, MySpace Music, Last.fm (owned by CBS, parent company of CNET) and Zune's Marketplace.

To this point, not one of them has generated the kind of market share to challenge iTunes.

I had a fascinating conversation with MediaNet CEO Alan McGlade on Friday morning. Unless you're deeply involved in online music, you probably don't know MediaNet, but it's the back end powering a lot of music services you might have used, including MOG's subscription service that launched earlier this week, as well as Microsoft's excellent Zune Pass subscription service and iLike's online music marketplace. (MySpace acquired iLike in August, and in November, links to iLike's service began appearing directly in music-related search results on Google.)

Fox Interactive used MediaNet's technology to embed this list of Aerosmith songs in a story about the band. Readers could then listen to a sample or buy the song.

(Credit: MediaNet)

They've also got more history in online music than just about anyone. The company started off as MusicNet, with part-ownership by three of the then-Big Five major labels: BMG, EMI, and Warner. They powered RealNetworks' music initiatives before RealNetworks bought Rhapsody. They powered Yahoo Music. They powered MTV's online music store.

These early stores went nowhere. Content owners insisted on digital rights management (DRM) restrictions, which meant that content from these stores had restricted use rights and couldn't be played on every device--including, in most cases, Apple's iconic iPod. Setting up a store using MediaNet's platform often took 18 months and significant technical expertise. In the meantime, Apple focused on a dedicated online store for its own devices, and completely dominated the market for music downloads.

But the landscape has changed. Labels don't want to be beholden to Apple. They no longer insist on DRM for single-song downloads, and have realized that the more outlets there are for their digital music, the more customers they'll reach, and the more sales they'll have. (Amazing it took this long to figure out.) MediaNet is, in my opinion, incredibly well positioned to take advantage of this sea change.

In October, the company released a set of technologies called MN Open that make it almost trivially simple for companies to add a wide variety of music consumption options to their Web sites. Sure, companies can still use MediaNet to build an end-to-end service like MOG.

But say you're Fox Interactive and want to make a story about Aerosmith more engaging. Using a MediaNet component, Fox created a link for the first mention of the word Aerosmith that took users to a page with more information about the band, and links to play and buy some of their popular songs. Fox also posted Aerosmith songs in a box directly on the story page.

MediaNet handled all the heavy lifting: licensing the music, streaming the samples, and fulfilling the transaction. Fox kept its brand and design throughout the process, and users didn't have to leave the site to buy the song. Best of all for Fox, it didn't have to make any up-front payment to use MediaNet's technology. Instead, MediaNet takes the customary cut of any song purchased through the site (about 30 percent, if it's anything like Apple). The model's the same for sites that offer free ad-supported streams or subscriptions--MediaNet takes a portion of each transaction, then handles payment to the content owners.

Now imagine this kind of integration on sites for radio stations, record labels, or your favorite bands. Imagine your ISP or cell phone carrier offering you a music subscription service bundled with your Internet service or smartphone. In this world, users won't have to go to iTunes or Amazon MP3, or subscribe to Rhapsody (or MOG for that matter). Music will be available for consumption everywhere. And content owners will get paid regardless of where users buy it.

According to McGlade, it's already happening--he said MediaNet is adding about one new distributor per day, and has already got about 50 customers using the MN Open platform. One site, GetPlaylists.com, was able to add playable song samples and downloads-for-sale in only two days with MN Open, according to McGlade.

Thanks to this upsurge, the company--which is owned by a private equity firm and no longer has any direct ownership affiliation with the major labels--has recently crossed over into profitability. A rare situation indeed in today's online music landscape.

It's a great vision, and something that Microsoft, the original platform company, could have done. But Microsoft spent years pushing the Windows Media Platform, which made heavy use of Microsoft codecs and file wrappers (instead of MP3s, which were becoming the industry standard). Microsoft also spent a lot of effort trying to enable the labels' DRM demands--for example, by building a platform to enable subscription-based downloads to be transferred to portable devices. Then, just as the labels were getting ready to abandon DRM, Microsoft basically gave up pushing Windows Media as a general-purpose platform for distributors and device makers, and instead started trying to mimic Apple's end-to-end software+service+device with the Zune strategy.

Talk about an opportunity lost! Instead of struggling along with something like 2 percent of the digital media player market, Microsoft could have ended up powering the music technology on thousands of Web sites.

Another aside: while MusicNet offers a lot of flexibility for distributors--downloads, samples, free streams, or subscriptions are all supported--McGlade is most bullish on subscriptions as the digital business model of the future. He admits that old fogeys accustomed to CDs and vinyl will have a hard time giving up the concept of ownership, but suggests that today's teenagers don't care--they want music on demand from any device, any time, in any location, and don't need to have the files physically present. McGlade thinks that subscriptions will have the best chance of taking off if they're bundled with some other product, like ISP service.

Scoff all you want about subscriptions, but the concept keeps coming up: music industry expert Donald Passman also believes they're the best chance for the music industry to thrive in the future. Even Apple finally seems to be bending to the idea of streaming music with its acquisition of Lala, although Lala isn't a straight subscription service, but more of an online music locker with some free streams, plus fee-based individual streams.

(Credit: Microsoft)

Microsoft will take another swipe at the iPod on Wednesday when it launches the latest version of the Zune media player.

After three years and untold millions spent on the line, Microsoft's hopes of cutting into iPod's big lead are now on the Zune HD, with its 3.3-inch multitouch screen, streaming-music feature, and the ability to playback video, with the help of an HDTV, in 720p. A 16GB Zune HD is available at retailers for $219.99 and a 32GB will cost $289.99.

But at this point in Zune's evolution there's plenty of skepticism that the Zune can close the gap on Apple. A Zune-iPod comparison has for too long resembled a late-round prize fight, the kind where the challenger is cut, swollen-eyed and wobbly legged but refuses to go to the canvas. Zune sales are falling, a top manager has moved on and what's perhaps most worrisome is that the category is becoming passe.

While Apple also tries to kick-start lackluster iPod sales--upgrading Nanos with such features as a video camera and voice recording--CEO Steve Jobs has steered consumer interest away from straight digital music players and into smartphones. Apple has sold more than 30 million iPhones over the past two years and seen more than 1.8 billion iPhone applications downloaded.

Nonetheless, this is still Microsoft, one of the biggest technology companies in the world and well known for its patience.

"You can make the argument this is Microsoft's first real shot to getting it right," said Stephen Baker, vice president of industry analysis for The NPD Group. "Remember, the bar doesn't have to be set all that high for them to be successful. Nobody is supposed to unseat iPod...and Microsoft now has a product that they seem to be more confident in."

That confidence may come in part from an upgrade that some have called the best Zune yet. (For more, see CNET's full review of the Zune HD.)

Zune HD features a new OLED (organic light emitting diode) screen and will send high-def video to a HDTV using a new Zune AV dock, sold separately.

"Consumers can buy or rent HD content from the Zune Marketplace," Microsoft said in a statement, "sync that content to a Zune HD and take it with them to play back on a large screen HD TV in the home or on the road."

The 16GB is available in black and the 32GB is available in "platinum" at retail locations. Customers can purchase Zune in red, green, or blue in both capacities from Zuneoriginals.net.

Zune HD will also play games, HD Radio, and offers music-recommendation software, called Smart DJ.

Online radio service Last.fm has always seemed to occupy an awkward middle ground between on-demand streaming music services that let you pick and play any song--like free services Imeem and Grooveshark, and Rhapsody, which charges for its service--and the radio-to-your-taste service pioneered by Pandora. (Disclaimer: Last.fm is owned by CBS, which is the parent company of CNET News.)

In my opinion, this is partly because of some flaws with the service itself. The radio service has a lot of powerful features for serious music fans who are willing to do a little work, as CNET's Donald Bell recently explained, but it doesn't work very well as an on-demand service. How do you add songs to a now-playing queue? Why hasn't Last.fm secured on-demand rights for huge artists like Pink Floyd and Led Zeppelin?

But there's also a bit of a branding gap. Compared with the organic buzz I hear about Pandora and Rhapsody, for instance, Last.fm hardly comes up. Now it looks like CBS is trying to address that issue. In an effort to increase brand awareness, CBS Radio will devote four broadcast HD Radio stations to Last.fm. The playlist will be drawn from listeners' favorites--Last.fm does such a fantastic job of tracking usage, I've referred to it for non-scientific measurements of artist popularity--as well as live performances in Last.fm's New York studio. The stations will make the cutover on October 5, and include KITS-FM (105.3 HD3) in San Francisco, WWFS-FM (102.7 HD2) in New York, KCBS-FM (93.1 HD2) in Los Angeles, and WXRT-FM (93.1 HD3) in Chicago. All four stations will play the same playlist.

HD Radio itself is still in a niche phase. Although it's available in more than 90 percent of major U.S. markets, the receivers are still fairly rare. That might change tomorrow with the launch of the Zune HD, the first MP3 player with a built-in HD Radio receiver. If nothing else, it shows that HD Radio technology is getting small enough and cheap enough to begin building it into a variety of consumer electronics devices--imagine when it starts becoming a feature in smartphones, for instance.

Chris Stephenson, general manager of marketing for Microsoft's Zune music player, is leaving to join Universal Music Group.

Chris Stephenson

(Credit: Microsoft)

Stephenson was one of the people Microsoft tasked in 2006 with trying to cut into Apple's massive lead in music. Despite some early favorable reviews, Zune has so far failed to mount much of a challenge.

Whatever flaws or limitations the Zune did or didn't have, when comparing the music player to the iPod, Microsoft just didn't present enough compelling reasons for owners to switch.

In January, Microsoft reported that Zune sales plunged 54 percent from $185 million in the last quarter of 2007 to $85 million during the same quarter a year later.

Stephenson, whose departure was first reported by the Wall Street Journal, is leaving as the Zune team tries to regroup. The company is in the middle of shifting from a device centered business to one that focuses on the portable player as just one of many places where consumers will be able to access the Zune service. Over time, Microsoft said it will be available on a range of devices, including Windows Mobile phones.

Microsoft is getting behind the launch of the latest version of the device, the touch-screen Zune HD, on September 15.

"I think the latest device and software, which we'll be launching soon, are our best to date," Stephenson told CNET News. "Looking at all the blogs and pre-sales, we've got a great year ahead.

"I think we've established a clear entertainment brand for Microsoft," Stephenson continued. "That's a big win. I'm really proud of our achievements. We've never had a consumer brand in music and video, so coupled with Xbox, we've got a compelling entertainment story and an established internal infrastructure to drive it forward."

Stephenson will become chief marketing officer at Interscope Geffen A&M Records, one of Universal's top labels. His last day at Microsoft is September 4 and he begins working for Interscope three days later.

Those crafty Microsoft "Laptop Hunters" have been telling you for weeks now that PCs are value and Macs are vanity.

So, while you cling on to what's left of your 401(k) with what's left of your fingernails, here comes a nice blond-haired man to tell you that it costs $30,000 to fill up the latest iPod. Assuming you use iTunes.

Well, I had never thought of it that way. Those little iPod thingies can hold that many songs? Goodness me.

Then I look back at the nice blond-haired man who is advertising the Zune Pass and think: "Hold on, I know you."

Yes, this is Wes Moss, a very nice chap who survived 11 weeks of Donald Trump on "The Apprentice." Which would classify him as a very, very nice chap indeed.

Wes is, allegedly, a certified financial planner. And this new TV ad for the Zune Pass shows that he has done very well for himself.

At WesMoss.com, you can discover some of the principles by which Wes lives long and prospers. The prime phrase seems to be: "Make more. Worry less."

It is a message Wes is very keen to propagate. Indeed, he has a message to anyone organizing, for example, a conference: "Let me know if your speakers have been boring lately--and I'll be happy to come try to lighten things up!"

Wes is, indeed, quite light on his mouth as he explains that if you're one those people hooked on iTunes, you should dedicate $14.99 each month for a Zune Pass. It will make you happier, wealthier and wiser.

Now, I wasn't all that familiar with Zune Pass, but I understand that it allows you to keep 10 songs every month as your own. I know those of you who have technology as one of the permanent buttons on your shirt will correct me if I am even in the remotest part mistaken.

But wouldn't this mean that in order to get those 30,000 songs (which, to me, feels like the goal of having 100,000 Facebook friends, but still...), you would have to wait, let's see, 12 times 10 is 120. 30,000 divided by 120, that would be 250 years, no? And perhaps even more money than $30,000.

Clearly there is something I don't understand, even though Wes is keen to tell me that "one costs a lot and one costs a little." Oh, I see, you just rent the rest of the songs, yes? You get bored of Cat Stevens and you just give him back? Won't Cat be offended? Do they have a list of songs returned? Would Coldplay be at the top?

Still, I do like the fact that this ad has a stance and a familiar face and makes me think that Zune Pass exists. Which means that Zune exists.

Which made me just try another calculation. $15 a month into $30,000, um, that would be 167 years? More or less?

Which means I will make more and worry less with Zune Pass! Because in 167 years, more or less, I will not be here, more or less.

Oh, please tell me. What have I missed here?

Update 4:15 p.m. PDT: Two clarifications. First, Remote Media Streaming is not limited to music--you can also stream video and pictures. I focused on music because that's the main topic of this blog. Second, you are required to associate a Windows Live ID (which used to be called Passport) with each computer whose library you want to share, and each computer you want to be able to access that library. I assume Microsoft took this step to avoid complaints or possible litigation from content owners.

In the announcement of the impending release of Windows 7 RC (basically the final beta), Microsoft on Wednesday confirmed a rumor that I first saw reported by Zack Whitaker of ZDNet last month: a new feature called Remote Media Streaming will let you access the music library on your home PC from another computer over the Web.

(Credit: Renai LeMay/ZDNet Australia)

It's like Slingbox, only instead of accessing the cable box or DVR sitting in your home, you're accessing the music files stored on your home PC.

It could get really interesting, if combined with Windows Live ID--simply associate a Live ID with your home machine, and you could get immediate automatic access to your music library whenever you log on with that ID on another machine (though you might need the Windows Media Player 12 on that accessing machine).

This is the first exciting new digital-media feature I've seen in Windows 7, but it seems to be at cross-purposes with other Microsoft efforts. For instance, one selling point of Windows Home Server is the ability to access files remotely, and while I suppose that some families might use that feature to access their financial records or homework, it seems like digital media would be the most interesting use. Offering that feature in Windows 7 takes some of the steam out of Home Server.

Then there's the whole Zune factor--for the last two years, the Media Player has languished untouched while the Zune PC software has been updated several times. Now, just when I had finally abandoned the Media Player, it looks like I'll have a reason to re-employ it.

From Microsoft's perspective, does it really make sense to have two product teams working on different digital-media clients for the PC? I don't think so, and eventually, Microsoft may have to pick a winner. I thought that Zune had the inside track, but now I'm not so sure.

Images: A peek at Windows 7 release candidate

LOS ANGELES--For anybody wondering why Microsoft and the top record labels continue to promote subscription music services, the answer was revealed Thursday.

Label exec David Ring says download sales by themselves won't solve music industry's woes.

(Credit: Universal Music Group)

David Ring, executive vice president of business development for Universal Music Group's digital arm, said at the EconMusic Conference that the recording industry simply can't sustain itself with download sales alone.

"If what we're trying to do is one-by-one downloads...that's not a business that can grow," Ring told conference attendees during panel discussion he participated in. "It won't be healthy for the industry."

Prior to Ring's statement, Chris Stephenson, an executive in Microsoft's entertainment unit, was ballyhooing the progress made in Zune's subscription service. Zune is the digital music player that Microsoft launched in November 2006 to compete with Apple's iPod. This is also the device that saw a 54 percent decline in sales for the fourth quarter of 2008.

Ring's statement made a big impression on me. The recording industry obviously continues to work the subscription angle, which is more than 5 years old, because a better way to boost profits hasn't come along. Label honchos aren't ready to discount anything--not when the margins on 99-cent downloads are so slim.

I was under the impression that eventually the download would replace the CD as the music sector's main sales unit. I assumed that instead of packaging a dozen songs together on a disc, the labels would just be forced to sell those songs individually. That isn't what they want to do, according to Ring.

Ring made clear subscription services are not the only business model Universal Music, the largest of the four top record labels, is exploring. Universal execs will continue testing strategies until they find one, or a combination, that works.

What strategies show promise? Panel members discussed some well-worn ideas, such as bundling music fees into people's Internet-access bills. One idea tossed around was packaging music into Netflix or a similar service.

I asked the panel, which included Cory Ondrjka, a vice president at EMI's digital unit, and Michael Spiegelman, head of Yahoo Music, how much longer the sector would try to breathe life into subscriptions. Anyone can see consumers just haven't warmed to the idea of renting songs.

There isn't a single music-subscription service selling music from the top labels that generates significant revenue. Yahoo couldn't make a go of it and got out. Napster and Rhapsody, RealNetwork's subscription service, continue to appeal to niche audiences. People just don't like the idea of losing their music if they stop paying fees.

Ring never wavered. He said subscriptions work and cited Netflix and cable TV as examples. There's no arguing that the vast majority of us pay for subscriptions: magazines, cellphones, insurance, Internet access, the list is long.

The music industry, however has yet to produce a subscription plan the public finds as compelling. And what was clear after listening to the panel is that nobody in the sector is ready to give up trying.

At last week's Apple event, CEO Steve Jobs informed the crowd that Apple holds roughly 73 percent of the MP3 market share. According to his numbers, Microsoft has a hold on a little more than 2 percent of the market. Given the ubiquity of the iPod versus the Zune, it's not hard to believe those figures, even if it's give or take a few percentage points.

On Tuesday, Microsoft released a new round of upgrades for its Zune, in hopes of making the gadget more competitive with the Apple offerings, and perhaps eating into that market dominance. On the Daily Debrief, CNET News senior writer Ina Fried shows off one of the new Zune versions, which looks--and is priced--suspiciously like Apple's iPod Nano.

The biggest difference between the two is the Zune's ability to connect to a handful of services via Wi-Fi. Ina explains some of the reasons why you'd want this capability on your MP3 player, but the question is, is this enough of an edge for Microsoft to increase its presence in the market?