Music Industry Responds to iCloud Announcement With Cautious Optimism

Sources say the next logical step for Apple is to create a streaming service

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Steve Jobs delivers the keynote address at the 2011 Apple World Wide Developers Conference at the Moscone Center on June 6, 2011 in San Francisco, California.
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On its face, Apple's iCloud – which allows users to access music they've bought on iTunes on multiple devices – might not be the immediate game-changer many in the music industry were hoping for. But, industry insiders tell Rolling Stone, once the cloud is up and running next fall, Apple will likely roll out new features that could not only change the way people listen to and consume music, but also provide a not-insignificant source of revenue for the sputtering record business.

"Anything I bought I can now download to any of my devices at no additional charge," Apple's CEO Steve Jobs said yesterday in his announcement of the service at the Worldwide Developers Conference in San Francisco. "This is the first time we have seen this in the music industry" – suggesting that iCloud  trumps similar music-storage services by competitors Amazon and Google. But how powerful iCloud could be won't become evident until the fall, when Apple is likely to unveil the crucial song-streaming part of the service.

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This will probably be part of the $25-a-year iTunes Match, which Jobs said will scan users' hard drives for music ripped from CDs, pirated online or purchased from non-Apple stores, "match" the songs on servers and allow them to listen to it via any Apple device. To be most efficient, sources say, this process will have to rely at least in part on streaming from the cloud to the device. "It's going to play instantaneously and beautifully," says Eric Garland, chief executive of BigChampagne.com, which monitors music fans' file-sharing habits. "In that moment, you're going to be a huge streaming aficionado."

Other sources suggest Apple – which wouldn't comment for this story beyond Jobs' keynote remarks at the Worldwide Developers Conference in San Francisco – will ultimately add a Rhapsody-or-Spotify-style streaming service in which all music is available for a monthly fee. "That would be the next logical step," says Jeff Price, chief executive of TuneCore, which helps artists place their songs for sale at iTunes, Amazon's MP3 Store and others. "First, here's your own music – then, 'hey, if you like, you could have access to all this music you don't own.' And if you've already trained people to get more comfortable with streaming, then they're likely to convert to the next level up."

Price suggests 10 percent of the 225 million iTunes customers with credit-card accounts will pay for the Match service – which would mean yearly revenues of more than $560 million. According to music-business sources privy to Apple's new licensing deals, the labels would make more than $330 million per year in this scenario – a powerful new revenue stream, even if it wouldn't be nearly enough to return them to the CD-boom era of the Eighties and Nineties. (Global revenue from music sales has gone from $36.9 billion in 2000 to $15.9 billion in 2010 – a nearly 57 percent drop.) "The price is so damn low," Price says. "I've got an iPod an iPhone and my libraries don't necessarily sync up. Yeah, I'm going to do it."

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David Pakman, a venture capitalist and former eMusic chief executive, is more skeptical, estimating users will max out at roughly 5 million or 10 million. (This would lead to $125 or $250 million in new Apple revenue, and $75 to $150 million for labels to split, sources say.) "Not small potatoes – they'll take it," he says, "but it doesn't change their business in a fundamental way."

Of course, Apple never reveals its plans in advance, so anything could happen with streaming and subscriptions between now and the fall. For now, those in the music business are merely pleased that the iTunes Match service's $25-a-year fee might help them make money from music consumers have previously pirated via Napster, Kazaa or torrents. "Yesterday was a good day for Apple – they separated themselves from at least two of their competitors, Google and Amazon. It was a good day for record labels – they figured out a mechanism to get paid for pirated music," says Jack Isquith, a senior vice president of strategic development for Slacker Radio and a longtime former digital-music executive at Warner Bros. Records. "And it was a really good day for consumers, because it gave them more options for interacting with music."

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