Apple Inc. is mulling a plan to upend its iTunes business by giving people unlimited free access to the music library if they're willing to pay more for the iPod and iPhone devices they use for playing and storing the digital media, according to a report published Wednesday.
Some analysts threw cold water on the plan outlined in the Financial Times, however, saying Cupertino-based Apple would risk creating an "accounting nightmare" and alienating some artists if it started giving away songs on its iTunes online store.
Rumors have buzzed through the industry for a couple years that Apple might open iTunes for free downloads. Meanwhile, Apple's rivals are experimenting with new ways to distribute music online ??” including giving it away.
The newspaper cited unnamed music industry sources in reporting that Apple is negotiating with record labels over a deal to offer a monthly music subscription for the iPhone, as well as an unlimited music bundle for both the iPod and iPhone.
The Financial Times didn't say how much the prices of those devices would jump if the proposal were to go through. But it said the sticking point in the discussions how much Apple will pay the labels for access to their music libraries, with Apple currently offering to pay just $20 per device. Apple did not respond to requests for comment.
Some analysts said the iTunes store is too valuable to Apple for it to give away the music in it. "I think it's a little far-fetched at this stage," said Tim Bajarin, president of technology consulting firm Creative Strategies in Campbell, Calif. "The studios still want to be compensated. And the artists, especially the independent artists, still want to be compensated. I'm skeptical that carte blanche, free access to any music may be in the works."
Only about 10 percent of Apple's revenues come through iTunes ??” about $2.5 billion in 2007. But the store has been a critical tool for driving the more-lucrative iPod sales and helping musicians get paid for their work.
Apple sold $8.3 billion in iPods last year, an 8 percent increase over the year before.
The success of iTunes has helped Apple become one of the world's biggest music retailers ??” it's currently the No. 2 music retailer in the U.S. behind Wal-Mart Stores Inc.
But it's also exposed Apple to criticism over how the company protects its content and prompted Apple to campaign for new ways to distribute music legally online.
To free up online music, Apple CEO Steve Jobs says the major record labels should strip protections known as Digital Rights Management, or DRM, technology, which prevents unauthorized copying, from their songs sold online. Apple, meanwhile, has refused to abandon its own copying protections.
Nokia Corp., the world's largest mobile phone maker, announced a deal with Universal Music Group in December that gives buyers of certain Nokia phones unlimited free downloads of songs from the Universal catalog. Seattle-based RealNetworks Inc. and Redmond, Wash.-based Microsoft both offer music subscriptions that cost $14.99 per month that the companies believe will appeal to customers who are more interested in discovering new music than owning old favorites.
Neil Smith, a vice president of marketing for Rhapsody, said its subscribers delve deeper into back catalogs and check out more independent artists than typical in-person music store shoppers. Subscribers also buy more MP3s than non-subscribers.