Apple acquires digital streaming service ahead of an expected revamp

Apple is expected to launch a new way of selling music on its iTunes online music store after acquiring Lala, a digital streaming service. The company is thought likely to integrate the technology behind Lala, a Silicon Valley start-up, into iTunes over the next year, offering consumers the chance to listen to tracks via the web.

ITunes customers buy tracks and store them on their computers for access by an iPod or iPhone. This download-to-own business model revolutionised the music industry and turned iTunes into the world’s biggest music retailer, with estimated revenue of $2 billion (£1.2 billion) this year.

Lala.com lets users buy and listen to music through a web browser, allowing its customers to access their purchased tracks from anywhere with an internet connection. Music streaming services have been gaining popularity because of the flexibility they offer consumers. Last.fm, News Corporation’s MySpace Music, Spotify and “internet radio station” Pandora have crowded into the sector, winning millions of users.

Lala recently signed deals with Google to offer music tracks to buy through search results and linked up with Facebook to become the social network’s music-streaming service.

Apple confirmed it had purchased Lala but declined to give more details. The Wall Street Journal reported, however, that Lala executives had been given key positions shaping music strategy for the iTunes Store.

The Lala service allows users to stream from the internet any tune in its catalogue of more than 8 million songs once for free and then sells unlimited streams for 10 cents a track. The 10-cent “web songs” stay in an online locker, accessible through any device with an internet connection.

The song quality is lower than that offered by iTunes but tracks can be played in seconds and cost much less than the songs on iTunes, which generally are priced at 69 cents to $1.29 each in the US.

Mark Mulligan, vice-president and research director of Forrester Research, said that Lala gave Apple a shortcut into streaming and social networking around music. He wrote in a blog post: “This is where the momentum of digital music has shifted and where Apple needs to be if it is going to remain relevant in the digital music landscape, even if revenue hasn’t yet shifted there.”

Music publishers have been pushing for music subscription services as a way of boosting revenue but with limited success. Spotify, an advertsupported free streaming service available in Europe, charges users a premium subscription of £9.99 a month to listen to songs on their phone and to access tracks on their computer without adverts. Only about 10 per cent of users pay up.

Going gaga for Lala

Lala, which is based in Palo Alto, California, was launched in 2006 with $35 million of venture capital from Bain Capital LLC, Ignition Partners and Warner Music Group Corp It began as an online CD-trading site but relaunched in October 2008 as a music retailer Lala has about 100,000 customers — far fewer than other digital music services such as Imeem, which has just been bought by MySpace for integration into its MySpace Music service Founder Bill Nguyen said in October that his company's revenues totalled less than $10 million Apple is thought to have paid as much $85 million for Lala, although some reports have put the price at as low as $17 million