Apple iTunes to Move to Streaming via Lala Purchase?

NEWS ANALYSIS: Apple's acquisition of the digital music streaming site Lala suggests Apple is getting ready to reposition iTunes to offer a music streaming service.

The confirmation by Apple that the company purchased the music streaming site Lala, which boasts just 100,000 customers by Lala's own count, raises the question, Why? After all, Apple's iTunes music application offers more than 11 million songs and is the leading digital music retailer with more than 70 percent of the digital music market in the United States.

While iTunes is far and away the market leader, digital music sites like Internet radio company last.fm; MySpace, which has repositioned itself as a musician-friendly Mecca; and U.K. service Spotify offer free streaming of full tracks selected specifically by the user-something iTunes doesn't yet offer. Indeed, a survey by Music Ally, which carried out a study with the media and technology research company The Leading Question earlier this year, found 65 percent of teenagers are streaming music.

Apple Care Specialist and President of Boston-based Tech Superpowers Michael Oh said Apple, which has dominated the digital download market for years, may now be looking to capitalize on the music streaming market-one Oh said has been the only type of digital music service that has been able to gain traction, either through subscription-based or ad-supported models.

"While people continue to like the idea of owning music and having it on their computer, in one sense the streaming side of the business is much more interesting," he said. "Looking at the U.K. as a little microcosm, what I've seen is traditionally within office environments, Spotify-available in the U.K. and a handful of other European countries-has replaced all other services for this particular use, where people just want to listen to something, and not the same old tracks."

No matter how large a playlist may be, people will continue to want to hear, and share, new music, Oh argues, and being able to choose your own tracks is essential to the market uptake for streaming. "Once people have the ability to choose their tracks, then they don't seem to care whether they offer that music or not," he said.

However, Oh notes that the other piece of digital streaming success stories is the ability to lure customers into buying that music once they've streamed it. "It is quite interesting how there's a direct tie between new music that you like and still wanting it mobile, so you'll actually end up downloading it," he said.

Lala, which recently inked deals with Google and social networking behemoth Facebook, offers a library of 8 million songs, which it allows its users to stream once for free, and also sells unlimited streams for 10 cents per track and MP3 downloads starting at 79 cents. In comparison, Spotify boasts a library of approximately 6 million tracks, while iTunes offers 11 million tracks and sells individual MP3s for $1.29.

Oh said Apple may have chosen a relatively unknown service like Lala as opposed to a company like Spotify because licensing issues are a major factor for these services, and if all Apple needs is a technology it can easily integrate with, it doesn't need to waste time duplicating an effort it has largely made on its own.

"For Apple, the fact that something is established doesn't mean much," he said. "I think Apple is seeing streaming as how the music industry is heading, and they may just want to hedge their bets."