Apple's iTunes cloud music service in limbo

Despite speculation Apple (NASDAQ:AAPL) would introduce a cloud-based version of its iTunes digital music service sometime this summer, the project is apparently on hold, with the computing giant reportedly telling record label execs that any cloud music efforts introduced in the next few months will be "modest in scope" and offer none of the more advanced features outlined in earlier discussions with the music industry, e.g. storing consumers' content on its servers. CNet reports the circumstances behind the holdup are unclear, but notes that Apple has yet to negotiate the licensing agreements necessary to offer a streaming music solution--multiple questions also surround the status of technologies and executives acquired late last year with Apple's purchase of streaming music startup Lala, a deal rumored to be valued at $85 million.

Lala is believed to be the key to the streaming iTunes service--offering consumers access to more than 8 million fully licensed songs for free, without ads or subscriptions, its model instead limited users to one listen for each song or album. Consumers also could purchase unlimited plays of songs for 10 cents, or DRM-free MP3 downloads for 89 cents each. Apple reportedly purchased Lala expressly to acquire the startup's engineering staff and their collective expertise with cloud-based music technology, and shut down the service on May 31--The Wall Street Journal later reported the Lala solution would power the so-called iTunes.com, which is expected to enable consumers to purchase music without going through the dedicated iTunes program on desktops and iPhones.

But CNet reports that in the eight months since the Apple/Lala deal, former Lala execs have been at work on an unspecified video project, adding that Apple brass has been slow to specify its plans and expectations for the acquired technology. Industry sources contend that one of Lala's four co-founders has since left Apple, with his departure's impact on the streaming iTunes effort uncertain.

Some insiders believe Apple has delayed the cloud service to expand the initiative into video streaming--sources inside Hollywood studios indicate Apple plans to offer "digital shelves" enabling consumers to store movies and television content on the company's servers. Others speculate the holdup is directly related to the server farm Apple is building in North Carolina, scheduled for completion by the end of 2010--multiple sources have said the servers will make up the backbone of the cloud solution.

iTunes sales topped $1 billion during the second quarter. The digital storefront now accounts for 70 percent of all premium music downloads in the U.S. according to NPD Group data released in late May. iTunes' growth is slowing, however--NPD notes its share of the digital download market has remained essentially flat since the first quarter of 2009, increasing just 1 percentage point since that time. Rival AmazonMP3 increased its market share by 4 percentage points, and now represents 12 percent of the U.S. digital music market. Sales of digital tracks and albums accounted for 40 percent of overall U.S. music market share in the first quarter of 2010, a gain of 5 percentage points since Q1 2009, NPD said. Adding physical music purchases to the equation, iTunes still leads with 28 percent of all U.S. sales, a 4 percent year-over-year leap.

More than a quarter of iTunes, iPhone and iPod users express strong interest in free cloud-based music services, with many willing to pony up a subscription fee to access their music libraries via multiple devices and platforms, according to an NPD consumer survey published last month. Asked their reactions on different free and premium options offering combinations of music streaming, music downloads and universal web access to their iTunes library, between 7 million and 8 million U.S. consumers tell NPD they would have serious interest in one of the paid alternatives, indicating a willingness to spend a minimum monthly fee of $10. NPD research also notes that a model giving consumers free streaming access to iTunes would attract 13 million to 15 million subscribers.

For more on the hazy status of the iTunes cloud service:
- read this CNet article

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