Apple Inc. (NASDAQ:AAPL) has not made much of a secret of its desire to improve its entertainment experience. With the company currently talking with cable providers about getting into live streaming video, Apple Inc. (NASDAQ:AAPL) is also taking a hard look at music and how it might develop a interactive streaming experience for users – one that might rival Pandora or Spotify but to a different level.
And in order to do that, Apple Inc. (NASDAQ:AAPL) is having conversations with copyright and license holders for millions of songs, and is working to develop a free, ad-sponsored but unrestricted experience for users. In order to do that, to work around current copyright protections and be cost-effective, Apple Inc. (NASDAQ:AAPL) is working to achieve some direct licenses from many of the top record labels and distribution companies in the music business. If this work gets completed soon, then it’s possible that a music service from Apple Inc. (NASDAQ:AAPL) could be available sometime in the first half of 2013.
While Apple Inc. (NASDAQ:AAPL) could provide this service earlier – even next week if it wanted to – the direct-licensing approach is more cost-effective for Apple Inc. (NASDAQ:AAPL) and less restrictive for the company and users of the service. For example, direct licensing means that Apple Inc. (AAPL) could have music channels dedicated to a particular group (the AC/DC Channel) or it could have tribute shows where it plays all the songs from an album consecutively. Also, users of the service could be more interactive in terms of social media, and could treat the music service as its own mp3 player – where the user can rewind, play and pause a song or album as often as it wants, as many times as it wants. Yes, there are licensing restrictions that apply to these actions when a company does not do the direct licensing, which takes longer than simply doing a compulsory or statutory license. Also, direct licensing means Apple Inc. (NASDAQ:AAPL) can offer an up-front fee for the license to music, rather than paying more progressively as the service gains more users – something that can be very cost-prohibitive for Apple Inc. (NASDAQ:AAPL) in the long run.
Working directly with the labels is a longer, more arduous process for Apple Inc. (NASDAQ:AAPL), but if it makes for an easy, highly interactive, and free-of-charge service for users, then it would be worth it for the company – and may generate a stable cost basis and revenue stream (through advertising) for investors in Apple Inc. (AAPL) stock, like billionaire fund manager David Einhorn of Greenlight Capital.