With Starbucks deal, Apple shows up music industry again

At a time when music execs are buzzing about Rick Rubin's declaration that the industry's model is dead, Apple rolls out new distribution model.

Steve Jobs demonstrated on Wednesday why Apple is snatching away the music business out from under the record labels.

Just days after Rick Rubin, Columbia Records' co-chairman, outlined some of his ideas for saving the music business--several that are dated and ignored by the public--Apple blows in with a new distribution model.

Apple announced at the company's press event on Wednesday that it launched a new Wi-Fi store in partnership with Starbucks. Each time an owner of an iPhone, or new iPod Touch enters a Starbucks, a button will appear on their device that enables them to buy music from the Wi-Fi library. They can download a song--without having to log in--by whatever artist Starbucks is featuring at the time, or music playing on the store's sound system or any other they can find in the library.

The service, scheduled to start in Seattle and New York on Oct. 2, is apparently designed to boost song sales. Much has been written about how iPod owners typically buy about 20 songs after first obtaining an iPod and then it's all about ripping music to the device.

Here's the beauty of the partnership with Starbucks: some investment banker or dog walker enters their favorite Starbucks, hears a song they like and with a few button pushes, it's on their iPod. It's an impulse buy. Cool song, only 99 cents, I can listen to it again as I sip. And the very next day, that banker or dog walker is likely to return, handing Apple another chance to market music to them.

That's partly why Starbucks has become a music-retail power. According to a story last month in the Financial Times, the coffee chain was responsible for nearly half of the 511,000 units sold of Paul McCartney's Memory Almost Full.

At the end of 2006, Starbucks operated more than 12,000 stores worldwide and generated $7.8 billion for the year, of course most of that is from coffee sales.

So Jobs has plopped iTunes down in physical stores all over the world and makes it easier than ever for consumers to buy music.

Meanwhile, Rubin, a music producer who has worked with the Red Hot Chili Peppers and Jay-Z and who has recently turned record executive, is pinning his hopes on music lockers, according to an interview that appeared on Sunday in the The New York Times Magazine. Music lockers have been called jukeboxes in the sky.

They allow users to store their music on host servers which can then distribute songs to wherever a listener can connect to the Web.

Companies like MP3tunes.com have tried this and have yet to attract a significant audience.

 

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