On 1st birthday, iTunes unwraps new features

The company also touted the fact that more than 70 million songs have been purchased to date from its online service. But while that figure is large, it falls short of the 100 million songs Apple had earlier projected the service would achieve in its first year, due to slower-than-expected adoption of the service and concept.

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Nonetheless, Steve Jobs, Apple's CEO, said he was pleased with the performance. "iTunes has exceeded our wildest expectations during its first year, charting a new direction for the music industry," Jobs said in a statement.

Among several new features is "iMix," which allows customers to publish their playlists for others to preview, rate and purchase. The company has also added "Party Shuffle," which is designed to automatically choose songs from a customer's music collection. The same feature also has the capability to display upcoming songs and add, delete or rearrange them. Customers will also be able to design and print jewel case inserts for CDs made using the service.

And although Apple has increased the number of computers a customer can load their iTunes songs onto from three to five, it has reduced the number of times a person can burn the same playlist onto a CD, from 10 to seven.

In a conference call Wednesday with reporters, Jobs said he didn't see the changes being a problem for most people, and added that the burning restrictions came at the request of the music labels.

"They feel very strongly about that," Jobs said. "Their industry is under siege (from piracy)."

Asked about pricing pressure from the labels, Jobs noted that all songs are remaining at 99 cents each. Although some albums are priced higher than the standard $9.99, Jobs said he sees album prices heading lower over time.

"That's what it is going to take to sell more albums," he said.

Jobs reiterated that the company still doesn't see a need for a subscription music service, saying that customers don't want to pay for a service that doesn't allow them to take their music with them on portable players and maintaining that record companies won't allow consumers to do that at a reasonable price.

Microsoft has a technology, code-named Janus, designed to enable digital music players to support subscription music by imposing a time limit on music transferred to a portable device.

"Microsoft doesn't own the content," Jobs pointed out. "The content owners don't think that's a very good idea."

Asked about what Apple might have in store for the iPod--such as video capabilities, color screens and so forth--Jobs said the company is focused on audio for the time being.

"People are buying these devices to listen to music," Jobs said, noting that music is a background activity for many people, unlike video-watching. "You can't drive a car when you are watching a movie. It's really hard anyway."

Other new features of the updated iTunes include a "lossless encoding" option to create sound files that Apple said have all the quality of the CD versions in half the space of an uncompressed file.

Apple also has added the ability to convert Windows Media music to Advanced Audio Coding format, which is supported by the iTunes Music Store. However, the ability to convert and play Windows Media files applies only to unprotected songs.

A recent Jupiter study found that 7 percent of people buying music players prefer files in Microsoft's Windows Media format, versus less than 1 percent who prefer Advanced Audio Coding format.

Apple says that it currently holds 70 percent of the market share for legal downloads, but a number of entrants have moved into the arena, including retailing giant Wal-Mart Stores, which is undercutting iTunes' prices. Microsoft also plans to enter the market during the second half of the year.

Apple said it is now selling songs at a rate of 2.7 million songs per week, or 140 million songs per year.

"I think the growth rate in the first year has been phenomenal," Jobs said.

Initial feedback to the iTunes announcements was positive.

Technology Business Research analyst Tim Deal praised Apple's additions to the service, including a move by Apple to offer a free weekly download. "Whenever anyone offers something free, your ears perk up," Deal said.

Mike McGuire, an analyst with research firm Gartner, said Jobs is doing the right thing to hold its pricing line as steady as possible, at least for now. Rising prices--particularly if there is no added value, such as higher-quality files or additional content--could turn off consumers who are still experimenting with the medium, he said.

"If there is no extra benefit, you run the risk of stalling the market where it stands," McGuire said. "If you do something like (raising prices) at this stage, consumers may say, 'Well, the old rules still apply, as far as the labels and the business goes.' That's really dangerous."

CNET News.com's John Borland contributed to this report.