The nascent online music streaming business just got a $3 billion shot in the arm, courtesy of Apple Inc.
With its acquisition of headphone company Beats Electronics and its newly launched music service, Beats Music, the company that pioneered the digital music download, appears to be endorsing a future in which most music — and television shows and movies, for that matter — will instead be streamed over the Web.
“We are already entering the postdownload era,” said Mike McGuire, a technology analyst at Gartner Inc. “Downloading was only around because there was no good streaming infrastructure.”
That has changed over the past few years. These days, streaming a song — and there are millions to choose from — is as easy as turning on the radio and just about as instantaneous.
“It’s music at your fingertips and you can’t get any better than that,” said Panos Panay, managing director of the Berklee Institute for Creative Entrepreneurship at Berklee College of Music. “There is no other time in the history of the modern music industry that access to music is so easy, in such a ubiquitous way.”
Services such as Pandora and Spotify let users stream music from their smartphones, tablets, home stereos, television sets, and even cars.
That proliferation has been made possible by more sophisticated smartphones and faster Internet and cellphone connections.
Streaming services are also getting better at knowing what listeners want to hear.
Earlier this year, Spotify paid a reported $100 million to acquire Somerville-based Echo Nest to improve its song selection.
Born out of the Massachusetts Institute of Technology, Echo Nest developed sophisticated technology to better recommend music based listeners’ preferences.
Echo Nest would not comment on the Apple-Beats deal. Pandora, on the other hand, said it was ready for the competition from Apple, which will continue to operate Beats Music.
“At Pandora, we’ve spent 14 years perfecting personalization and redefining the radio-listening experience,” said a spokeswoman. “When we launched, Yahoo, AOL, and MSN dominated Internet radio. Today, Pandora remains the leader in Internet radio with more than 70 percent of the total market share.”
Streaming is gaining speed. So far this year, audio streaming has grown 45 percent compared to the same period last year, according to Nielsen Broadcast Data Systems. During the same time, according to Nielsen, downloads of digital songs and albums dropped 12 percent.
But while it is clear where consumers are going, it is a big question whether streaming can be profitable for Apple or whether it will eat into its iTunes revenues.
Apple does not break out figures for sales of songs and albums on its iTunes Store. Overall, though, the store generated $4.6 billion in sales for the first quarter of the year, 11 percent more than same period last year. Analysts say that most of the money is generated from the sale of apps, not music.
Even though Pandora and Spotify have millions of users each, many of whom pay for premium service, neither company is profitable.
“There’s not a lot of money to be made in streaming in the current model,” said McGuire.
But music industry specialists and tech analysts agree that Apple didn’t just buy Beats to pump up its own iTunes Radio streaming service, or to build something new that focuses on music.
“To do something that would be only music streaming would be swimming against the tide,” said Mark Mulligan, a music industry analyst.
Instead, said Mulligan and others, Apple may create a much bigger subscription-based product that includes music, movies, and television shows.
Instead of charging 99 cents to download a song or $3.99 to rent a movie, it could, say, offer those in some kind of subscription package similar to the way Netflix works.
That is what Amazon.com is doing with its $99 a year Amazon Prime subscriptions. And reports are already emerging from tech blogs that Amazon will launch its own music streaming service this year.
If Apple can convert just a fraction of the 800 million iTunes accounts into subscribers of a paid service, it could become a dominant provider of paid streaming Internet content, whether music or television shows.
Whatever Apple builds with its newly acquired Beats brand, observers say Beats cofounders, the legendary producer Jimmy Iovine and rap impresario Dr. Dre, will play a major role.
The duo bring with them the kind of influence and connections to the entertainment industry that Apple enjoyed when the late Steve Jobs was at the helm.
And as Apple the computer company morphs into Apple the entertainment company, it will need that kind of star power to help ink licensing deals and contracts with the music and television industry.
“Fundamentally what Apple is buying is the creative spirit of the cofounders of Jimmy Iovine and Dr. Dre,” said Panay. “Apple is really looking for an infusion of creativity.”