Three Minds On Digital Marketing @ Organic

Many news sources are reporting that Apple has purchased music streaming service Lala. I'm a big music fan and subscribe to Rhapsody, but had never used Lala. I definitely remembered that in the past, some of its services raised the ire of the record labels, and visiting the site's current incarnation, I'm somewhat surprised that it still hasn't run afoul.

Everyone is speculating on exactly why Apple is making the purchase, and as is typical, Apple is smartly mum. What's perhaps more interesting is what precisely is being purchased, as the New York Times reports that the record labels have the equivalent of an out clause, which means that the licenses aren't transferable to an acquirer. So what's the deal, literally and figuratively?

Here's what I think is happening:

Apple has basically cornered the market on MP3 digital downloads, podcasts, etc., but as it surveys consumer behavior and the competitive marketplace, it is recognizing that the upside potential of digital downloads will begin to level. Finally, at long last, and despite Steve Jobs' arguments to the contrary, consumers are starting to show a penchant for access over ownership...at least with regards to music and video media. Music-wise, this is manifest in the continued growth -- at least in usage -- of companies like Pandora, Slacker, et al. With the competitive specter (and great pumpkin) of Spotify on the horizon, Apple sees this acquisition as a way to purchase intellectual expertise (people) and property (IP) as well as some infrastructure (IT) to jump into this marketplace.

One could conceivably ask why Apple would want to fortify a business that in and of itself is not particularly profitable. I think the answer is as simple as the business rationale for the continued investment in iTunes; it helps sell hardware: iPods, iPhones, Macs and hopefully Apple TVs and iTablets, and that is a very good business for Apple, which rakes in a lion's share of profits from higher end consumer electronics and computers.

What does this mean?

I think it's a great time to be a gadget-crazy, music loving consumer. The world's entire music collection -- from the hits to the obscurities -- will finally be at our fingertips, literally. It might also be a good time to be a record label after 10 very difficult years.

What's your take?

Jonathan Cohen