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Apple's online music coup ignites a budding industry

CUPERTINO, Calif. (AP) -- Allen Evans of Middlesex, Vt., is no stranger to digital music. About two-thirds of his music collection comes from free copies on file-swapping networks. The remainder was ripped from CDs he and his family already owned.

Recently, Evans downloaded four songs -- and gladly paid for them.

The 19-year-old's purchases, along with 1 million other tracks sold in the first week of business for Apple Computer Inc.'s online music store, mark a refreshing turn of events for the ailing music industry.

Steve Jobs, Apple's chief executive and the closest thing Silicon Valley has to a rock star, has succeeded in a major coup, forcing tectonic change in an industry notorious for its dinosaur pace and dragon tactics.

At 99 cents a download with virtually no restrictions on how and where the songs can be played, Apple's service for Macintosh users is proving to be the most promising alternative yet to free, pirated music.

"The hardest part was to convince the labels that 99-cents-a-download is a legitimate business, and Apple did that work already," said Josh Bernoff, an industry analyst at Forrester Research.

"If it weren't for Steve Jobs' persistence, I don't think this would have happened," said Hilary Rosen, chief executive of the Recording Industry Association of America and its most vocal piracy fighter.

Over 18 months, Jobs and a small team of high-level Apple employees negotiated the deals with Universal, Warner, BMG, EMI and Sony Music Entertainment. At times, Jobs personally demonstrated the music service to persuade the Eagles, Dr. Dre, Sheryl Crow and other reluctant artists to come aboard.

Jobs hit the right chord with artists and with some of the very record executives who had, two years ago, accused him of encouraging piracy.

Rosen said Jobs sold them on the elegance and simplicity of the iTunes Music Store design. He persuaded them, she said, to bet on his strong belief that consumers want to "own" the music they download -- instead of see songs disappear from their computers under existing subscription-based services.

Because Apple commands less than 3 percent of the desktop computer market, the iTunes Music Store amounts to a trial run, Rosen said.

More importantly, Jobs struck at the right time.

After two years of declining CD sales, unabated online piracy and lukewarm consumer interest for its own online subscription services, the industry was ready for something new.

Jobs, who also runs the Pixar Animation Studios behind such hits as the "Toy Story" movies, "had the integrity and talent, with the experience of movie and songs and technology," said Jimmy Iovine, chairman of Interscope Geffen A&M, part of Universal Music Group.

Jobs' success is encouraging to competitors and wannabes, especially those that serve the Windows market, which Apple says the iTunes Music Store won't serve until later this year.

"If he's the one that gets the game going -- great," said Dan Hart, chief executive of Echo, a joint venture of Tower Records, Best Buy and four other retail chains that plans to mirror Apple's pay-per-song model in the larger Windows world.

Echo has yet to complete technology and licensing deals, he said, but the time is ripe.

That Apple's store sold a million tracks in the week following its April 28 launch apparently shocked record executives, who said they would have been satisfied with a million in a month.

"Apple's success has shown that by loosening the restrictions on what consumers can do with the music, that's the right way to compete with free" file sharing, Hart said.

Competitors point out that Apple isn't the first to sell downloads by the song. And other services, too, allow burning onto CDs and transfers to portable music players.

But Apple was the first to piece everything together -- with virtually no restrictions, a reasonable price and a relatively easy-to-use computer jukebox program -- all without charging subscriptions, industry analysts say.

Customers can keep the songs indefinitely, play them on any number of iPod portable players and burn unlimited copies onto CDs.

By contrast, industry-backed music services such as pressplay and MusicNet require monthly fees and disable songs once subscriptions end.

Singer-songwriter Janis Ian, a Grammy Hall of Fame inductee and vocal critic of her industry's anti-piracy tactics, is thrilled by the new Apple offering.

"You can't call it visionary because they should have come up with this five years ago," she said. "It's ironic that a computer manufacturer is teaching the record industry the next step, and so far, that's what's happening."

Listen.com, which is being acquired by RealNetworks, plans to keep charging subscriptions to Rhapsody, its online music service, while adding a pay-per-song option, said company spokesman Matt Graves.

Echo plans to let consumers choose between a subscription package and single-song downloads.

Microsoft Corp., too, is entering the online music fray next week with MSN Radio Plus. Though it will initially charge $4.99 a month for streaming -- listening to music while connected online -- MSN may one day match Apple's per-song downloading onto computers, said Hadi Partovi, general manager of MSN Entertainment.

"Microsoft is glad to see the labels are providing more flexibility. They're providing that to anybody, not just to Apple," Microsoft chairman Bill Gates said in an interview. "We think we can help the labels and shift behavior toward the legitimate purchase now that the flexibility has gone up."

Dan Sheeran, vice president of marketing at RealNetworks, sent Apple a thank-you e-mail. By promoting the idea of legal downloads, he said in an interview, Apple "is really good at getting a lot of attention -- and other people tend to get the economic benefit."

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AP writers Ron Harris and Helen Jung contributed to this story.

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May Wong can be reached at maywong(at)ap.org

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