Apple bites into tune biz

iTunes Music Store charges 99¢ per download

This article was corrected April 29, 2003.

NEW YORK — Amid anticipation from music insiders and techies alike, Apple finally took the wraps off a new digital music service on Monday that it hopes will bolster the company’s user base and lure music fans away from free sites once and for all.

Called the iTunes Music Store, the new service avoids the unlimited monthly pricing plan adopted by most early entrants into the digital music market in favor of an a la carte pricing scheme, charging users 99¢ per download.

Thanks to deals signed with all five major label groups, the Music Store will offer more than 200,000 digital tracks, including material from U2, Bob Dylan and Sting. Users will be able to download the tracks, make unlimited CD copies, and transfer them to Apple’s iPod digital players.

At the same time, Apple unveiled a new version of the iPod, which is slimmer and lighter than the original and has more memory in its high-end iteration. The company also upgraded its iTunes music software to act as a portal to the new service.

The interface for iTunes Music Store is rendered in classic Apple style, featuring a sleek, brushed-aluminum look and a small number of neatly arranged windows for viewing and searching through the music catalog.

The Music Store will offer tracks in the industry standard AAC (advanced audio coding) format, which provides higher quality and smaller file size than the wildly popular MP3 format.

Limited access initially

At launch, the Music Store service is only available to users of Apple’s Macintosh computers, though most industry insiders expect Apple to bow a version of the service for users of Microsoft’s Windows operating system in the not-too-distant future.

That will limit its impact on the overall market — at least in the near term — since Apple represents only one-tenth of the installed base for PCs in the U.S. However, Apple boss Steve Jobs is banking that the new Music Store will give his machines an added appeal in an era of increasing commodification within the PC market.

“A lot of new things start first on the Mac — our users tend to be early adopters,” said Apple senior VP of worldwide product marketing Phil Schiller. “If you look at early Internet usage, for instance, they got on as a group a lot earlier than PC users.”

Jobs and many admirers in the music business also hope that the service will be affordable and consumer-friendly enough to entice tech-savvy music fans away from free peer-to-peer services like Kazaa and Morpheus, which boast tens of millions of devoted users.

Key question

Jupiter Research senior analyst Lee Black says Apple’s success will hinge on how how it’s being sold at least as much as what’s being sold.

“They’ve clearly thought a lot about the consumer and how he or she will interact with service,” he said. “But it’s still a download service, and they need to do a really good job of marketing if they want to get people hooked.”

Efforts at creating a legitimate market for digital music haven’t borne much fruit to date, suffering from limited subscriber counts and stiff competition from free services. Apple neatly sidesteps the subscriber-count issue with its individual sales model, but it remains to be seen how many users will be willing to pony up a dollar per download.

Warner Music exec VP Paul Vidich is bullish on the commercial prospects for the service, noting that Apple’s layout is a quantum leap forward in terms of usability.

“I think it’s going to be a very powerful consumer proposition,” Vidich said. “You don’t have to pay to get into the store (as with subscription services). Once you’re there it’s just click and you own it.”

Apple investors also gave the launch an early thumbs-up Monday, bidding the stock almost 4% higher to close the day at $13.86.

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