As acquisitions go, Apple's (AAPL) purchase of music-downloading startup Lala.com was tiny, valued anywhere between $17 million and $80 million, depending on which media source you wish to believe (The Wall Street Journal or TechCrunch). The deal, though, could still hit a high note for the tech bellwether.
The Lala.com acquistion may be Apple's first step toward radically overhauling its iTunes digital marketplace, according to the Journal. Instead of requiring iTunes users to download music from a specific computer, Apple may allow them to buy and listen to music from any computer, as Lala does, through cloud computing. The ability to sell music on a variety of platforms would give iTunes an even wider reach.
Lala also lets users listen to any song or album from its catalog, once, for free. Users can preview entire songs instead of the 30-second snippets iTunes allows. As PC World notes, that could make music fans happy, helping users avoid "purchasing a song that sounds good in the previews but ends up being three minutes of blah with a catchy chorus."
Moving to the Cloud
Apple may see a fundamental shift in technology from storing data (like music) on hard drives to storing them in online clouds. Business computing applications are increasingly moving in that direction as well. (Apple declined to comment.)
An iTunes overhaul could tighten Apple's already formidable stranglehold on the digital-downloading segment of the music industry. Music labels have long whined about Apple's pricing polices; bands including AC/DC and the Beatles have refused to put their catalogs on iTunes. Venerable music manager Irving Azoff told the Journal that his bands, including The Eagles, make far less money from iTunes than most fans would believe.
"That new business model extends Apple's grip on the music business, giving it the ability to sell music through search engines and other Web sites and broaden its reach beyond people who come to its virtual store," the Journal notes.
A One-Stop Shop
Adding Lala may mean Apple wants to become consumers' one-stop entertainment shop, like Comcast Corp. (CMCSA), which plans to take control of NBC Universal from General Electric Co. (GE). Apple already offers Apple TV, a service to rent movies.
Digital music, which accounts for about 20% of all recorded music sales, has been one of the industry's few bright spots amid plunging sales. In 2008, the digital-music business grew by around 25% globally, to $3.7 billion, according to International Federation of the Phonographic Industry.
In the end, the music industry may have little choice but to go along with Apple's plans. In fact, the Journal notes, music industry executives voiced concern about any development that might make Apple more powerful but "were optimistic about the prospect of consumers being able to buy music from more Web sites." Music industry executives and associates declined to comment.
Investing Like Warren Buffett
Learn from one of the world's best investors.View Course »