How Streaming Music Could Become Apple's Next Billion Dollar Business

Last Updated Jul 29, 2010 10:47 PM EDT

When Apple (APPL) purchased and then killed the online music service Lala earlier this year, most tech observers assumed that a streaming version of iTunes was in the works. A new report out from NPD confirms just how huge the potential market for this service would be, and why it's so important for Apple to beat Google (GOOG) to to the punch in delivering music from the cloud.

The report found that between seven and eight million users had a "strong interest" in paying $10 a month for streaming access to music. "If the consumers who indicated strong interest in a paid subscription actually adopted one of those services at $10 per month, the market opportunity is close to $1 billion in the first year," said Russ Crupnick, vice president and senior entertainment analyst for the NPD Group.

This cloud based music service could take two forms. Apple might make a wide library of popular songs available for unlimited access, much like Rhapsody does now. Or it might try and build a "digital locker" where users could store all their music in the cloud and access their tunes on the go from any number of internet connected devices.

Streaming music might cannibalize some current revenue from iTunes digital downloads, but Crupnick believes this is a trade-off that will work in Apple's favor. The average user, says Crupnick, spends $45 a year purchasing tracks from iTunes. Compare that to $120 a year for a monthly subscriber. And Apple has a major advantage over competitors like Rhapsody when it comes to signing customers up. Digital downloads mean Apple already has over 35 million credit card users registered in its system.

Turning a profit on streaming music, of course, would depend on getting the labels to agree to reasonable licensing fees. That has been a real sticking point, in large part because the record industry is nervous about giving Apple any more power in the music market. According to the WSJ, Apple approached the labels about building a digital locker in early 2010, but the talks were a "swing and a miss".

Google already showed off this kind of music streaming capability on Android during a demo back in May. That's why Apple should do everything in its power to get this deal done now. It has a commanding lead in terms of customers, with millions used to buying music through iTunes. If it can move first, Apple could capture a dominant share in the wide open market for streaming music.

Image from Wikicommons
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  • Ben Popper

    Ben Popper writes at the intersection of culture and technology. His work has been published in the NY Times, Washington Post, Fast Company, Rolling Stone, The Atlantic and many others. He lives at www.benpopper.com.