Five months after buying the web-based music service, Apple (NSDQ: AAPL) is now shutting Lala, in what is likely preparation for a web- or subscription-centric upgrade to its own iTunes Store.
The site has stopped accepting new sign-ups and will shut to existing users on May 31, says a message on Lala.
Since launching in 2003, iTunes Store, to the labels, has been a welcome bulwark against what would have otherwise been even more chronic decline. It now contributes over a quarter of U.S. music sales. But, in a North American music market that’s now shrinking faster than anywhere in the world, digital income has now basically flatlined, growing just 1.1 percent in 2009, says the industry’s IFPI.
Web-based streamers and new subscription models, offering unlimited music access, offer the industry promise of another shot in the arm. Spun-off Rhapsody now looks in shape to arrest the decline that’s brought it to 675,000 subscribers, Spotify’s excellent client has 320,000 premium subscribers out of seven million users but still has not launched in the U.S.
Against both the web and subscription rise, iTunes’ a la carte reliance looks archaic and one-dimensional, tooled for a market that’s plateaued.
But Apple has already moved closer to a web-based iTunes by displaying iTunes Store listings on a series of iTunes Preview pages. Reports, at the time of the acquisition, that Apple fancied Lala’s “payment and fulfillment systems”, suggest it’s also interested in subscriptions. It’s not clear whether it will launch a web-based service, a subscription offering or a combination of both, though a few industry sources I’ve spoken with speculate it will launch an underwhelming “locker”-type service, to house already-bought tracks in the cloud, before going all-out on subscriptions proper.
iTunes’ flatlining has created an opportunity for new services to race to a legal music gold rush, in a space partly created by a growing number of anti-piracy moves by international governments. The labels can’t wait. “The subscription models that we are promoting will create much more value over time than the per-play or per-purchase models,” Warner Music Group (NYSE: WMG) CEO Edgar Bronfman Jr said in February. “The number of potential subscribers dwarves the number of people purchasing music on iTunes.”
Maybe so. But, depending on what Apple does with Lala, rivals should be very concerned. Rhapsody and Spotify may be looming, Mog.com may have an attractively-priced service and Rdio.com is on the horizon. But none has iTunes Store’s existing heft and leverage…
The store has over 125 million user accounts with credit card numbers - convincing just some of its music lovers to subscription will be very easy, and flipping them from occasional, one-off payments to recurring debits of, say, $9.99 a month, could create yet another massive new income stream for Apple, which has already introduced recurring subscriptions to its mobile apps. Whatever it does will likely have more impact than Lala, which has never launched outside the U.S..
“There is a short window of opportunity for Rhapsody and others to lock in some of that growth for themselves before Spotify launches Stateside or Apple launches its own version, thus changing the competitive environment,” wrote Forrester analyst Sonal Ghandi this week.