Cloud in the Forecast For Apple

Last week, Apple announced it will shut down Lala, the streaming music rental service it acquired late last year. Lala has already stopped taking new sign-ups, and existing users will be cut off come the end of May, though they will be able to keep any songs already downloaded.

The move, though not unexpected, immediately touched off speculation that Apple would soon unveil a new cloud-based iTunes streaming music service using Lala’s platform (to say nothing of the griping by jilted Lala users). Nearly as quickly, however, came reports shooting down such speculation.

MediaMemo’s Peter Kafka reported Friday that Apple had shopped around a cloud-based iTunes music “locker” proposal to the record labels in recent weeks and got the cold shoulder, in part due to the hideously complex rights situation regarding music distribution. Unlike an iTunes download, on-demand streaming is a digital performance of the work under copyright law, which means more of the money goes to the artist and music publisher instead of the record label (it’s actually more complicated than that, but you get the idea).

So why shut down Lala if there’s no chance of launching an iTunes.com? Because cloud-based media storage and retrieval is central to Apple’s long-term strategy, whether or not the record labels want to cooperate. And Lala is central to implementing that strategy. Shutting it down and shucking its current user base is simply a necessary step to integrating Lala into Apple’s broader media strategy. As MP3tunes CEO Michael Robertson spelled out in a TechCrunch post back in January, Lala’s true value to Apple lies both in its cloud-based storage platform and its software for managing that.

As Apple itself did with the original iPod, Lala recognized that any successful media solution had to incorporate content people already owned. Once users transfer their own libraries to the platform, they’re all-but locked in for future purchases, due to the cost and aggravation of switching to another platform.

In Apple’s case, once you let iTunes manage your MP3 library, it was a pretty good bet you would keep buying iPods. In Lala’s case, it built a software tool that organized the music on your PC and moved it into the cloud so it could be played back with any web browser, right alongside Lala’s paid music offerings. Technically speaking, Lala’s software didn’t actually copy your music files; that would have been an unlicensed reproduction. Instead, it stored metadata about the content, which it then streamed from its own servers.

Now imagine a future iTunes update that organized all your media (or metadata) — music, video, photos, e-books — and moved it to the cloud right alongside the iTunes store, so you could access it from any Apple device. That would create an immediate and huge base of users to whom Apple could sell new media content.

The rights issues would get complicated, but if the record companies don’t want to play, Apple has plenty of other content owners to help fill its cloud platform. The movie studios and TV networks, in particular, are hungry for anything that smells like a paid digital strategy and might be more than happy to work out the rights issues. Print publishers too. And recent court decisions could even give Apple additional leverage in negotiating with the networks.

The record companies, of course, have a longer history with Apple than the movies studios or publishers, and not all of it is happy, so a certain amount of skepticism on their part is to be expected (and probably came as no surprise to Apple).

At some point, however, a huge base of locked-in users able to purchase and add unlimited amounts of new content to their media libraries with a tap of their finger on an app is going to be difficult for content owners to ignore.

Question of the week

Would you be willing to store all your media in the cloud?
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Paul Sweeting

Principal Concurrent Media Strategies

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5 Comments Subscribers to comment

  1. Good post, Paul. I’d trust my media to the cloud, but only if I could access the stuff from any connected device — not just an Apple gadget. I’m often on a PC, and I’d definitely want to be able to share non-DRM-wrapped stuff (like my photos and videos) to friends and family anywhere.

    1. Thanks Colin. I think one reason Apple bought Lala when it did (very soon after Google partnered with Lala on Google Music search) was so Google didn’t buy it and use it for an open-platform version of the same thing.

  2. Hi Paul- re your question, absolutely no. 1) privacy concerns, 2) large data volume (Even a ripped DVD is more than 5GB /per disk even more for Blu-ray) – too big to transfer to cloud, 3) not all device are connected all the time, and 4) iTune was eating too much resource and I no longer use it anymore.
    I suspect the cloud should not be used as a massive storage. It is a new way to consume applications. I also think there is a fundamental cannibalization between a content subscription business model and a content sales/content download business model. Interesting to see how Apple can handle it on the extension of Lala’s technology.

    1. Paul Sweeting Blst Friday, May 7, 2010

      Hi Blst–I don’t think Apple is really thinking in terms of ripping your DVDs to the cloud as that would be illegal in most case (although interestingly, Apple last month made a proposal to DVD-CCA for a “managed copy” system that would allow you to do just that, only to have the studios shoot it down). As for Blu-ray, it’s licensed managed-copy system may or may not ever get off the ground and Apple can cross that bridge if it ever gets to it. So as a practical matter, you’re not really talking about needing to store ripped DVD or Blu-ray files in the cloud.

      More likely Apple is thinking about purchased downloads, in which case you probably wouldn’t need to actually store the file in the cloud. Certainly if you bought the title through iTunes, you could just register a rights token in your iTunes locker and the file could be streamed to you on demand from Apple’s existing iTunes Movie Store servers.

      Absolutely agree that there is a fundamental cannibalization between subscription content and paid downloads. It will indeed be interesting to see how Apple handles it, especially as it starts bumping into Netflix at more and more turns.

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