Apple 2.0

Covering the business that Steve Jobs built

Apple inks deals with 2 music labels, 2 more set to sign

May 19, 2011: 7:56 AM ET

Google and Amazon suffer a setback as the music industry, once again, puts its trust in Steve Jobs

CNET's Greg Sandoval, who reported last month that Warner Music (WMG) had signed a deal with Apple (AAPL) to make its content library available on a new music streaming service, broke the news late Thursday that EMI had also come on board and that deals with Sony (SNE) and Universal could be wrapped up as early as next week.

If this plays out as Sandoval predicts, Apple may be in a position to announce at its Worldwide Developers Conference on June 6 that it has done for music stored on third-party servers (A.K.A the "cloud") what it did for music stored on personal computers: Persuade the big four labels -- who control 80% of the U.S. music market but whose revenue stream is being drained by music piracy -- to put their faith in Apple.

It was on the strength of the deals Steve Jobs signed with the labels nearly a decade ago that iTunes became the world's largest music store and the foundation on which Apple built the iPod into a multibillion-dollar hardware franchise -- one that now includes the iPhone and the iPad.

In the new version of the iTunes store, high-quality copies of the music labels' songs would be stored on Apple's servers. Apple, with the users' permission, would scan their Macs or Windows PCs to see what songs they owned. The users would then have free access to those songs on Apple's servers whenever they wanted and on any device they owned.

Amazon (AMZN) this year launched a similar service and Google (GOOG) is testing another (both are reviewed by Walt Mossberg in Thursday's Wall Street Journal). But neither Amazon nor Google were able to come to terms with the music labels, which meant that to get the same streaming access, users would first have to upload their entire music libraries, a process that can take days.

Ironically, Amazon and Google's preemptive strikes may have driven the labels into Apple's arms.

According to CNET's Sandoval, "The hope in the music industry is that Apple's music service will make the competing offerings look shabby by comparison and force Amazon and Google to pay the licensing rates the labels are asking."

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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