Apple Rocks On With Digital Music

SAN FRANCISCO ( TheStreet) -- We may not see Apple's ( APPL) eagerly-anticipated Tablet device at the company's keynote event Wednesday, but digital music will be firmly in the spotlight.

With the iPod featuring prominently on the event invites sent out to journalists last week, iPod updates are inevitable, and there is growing speculation that Apple may join forces with another world-famous brand.

Sept. 9 is also the launch date for "The Beatles: Rock Band" video game, as well as the digitally remastered versions of the Fab Four's music. For some time now, there have been rumblings that Apple will also add the Beatles catalog to iTunes, and a multi-pronged launch would certainly grab headlines.

So, will we see Paul McCartney and Steve Jobs sharing a stage in the mother of all photo opportunities? Stranger things have happened -- the music legend has already appeared in one of Apple's iconic ads, and the media is desperate for a glimpse of the returning Apple CEO.

Aside from the media brouhaha that will accompany Wednesday's launch, there is a longer-term question here. How will Apple keep its iTunes business fresh? The empire of fruit dominates digital music downloads, as well as offering movies and videos, but, as Steve Jobs knows, technology can't stand still.

At least one analyst, for example, thinks that Apple is planning to tie iTunes more closely to its AppleTV wireless device.

The Street's Apple TV Wish List
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Launched in 2007, Apple TV lets users play iTunes content on their TVs, but is hardly a going concern. Relegated to the bench while the iPhone, Mac and iPod battle it out against tech's biggest names, Apple TV has enjoyed 'hobby' status in Cupertino.

This, however, could be about to change, according to Piper Jaffray analyst Gene Munster.

"The company appears determined to capitalize on its opportunity to bring the iTunes ecosystem to the living room," he wrote, in a recent note. In the coming months, Munster expects Apple TV to add a monthly subscription service for iTunes TV shows or TV recording features such as DVR.

The analyst feels that ad-based Internet TV like Hulu.com and subscription services such as Watch Instantly from Netflix ( NFLX) are gaining ground on iTunes, which offers one-off purchases.

By tapping into its library of content from network and cable companies, Apple could even offer a monthly subscription service as an alternative to customers' cable bills.

"While timing on the launch of such a service is very uncertain given the negotiations that would have to take place, Apple may launch it simultaneously with a new version of Apple TV or updated Apple TV software within the next year," explained Munster.

Not everyone, though, agrees that Apple needs to offer subscription services, either for TV or music.

"There has been a lot of speculation in the past that Apple will offer some type of subscription service and streaming," Sonal Gandhi, media analyst at technology research firm Forrester, told TheStreet.com. "But Apple has a good hold on the a la carte digital download business."

Rather than going head-to-head with subscription music sites such as Napster, Rhapsody and eMusic, Gandhi thinks that Apple will stick with what it knows.

"They don't really need to do anything crazy -- the competition is not there right now," added the analyst. "There is no one that is going to dethrone them anytime soon."

According to figures released last month by The NPD Group, Apple owned 69% of the digital music market in the first half of 2009, followed by Amazon ( AMZN) MP3 with just 8%. Customers have already downloaded more than 8 billion songs from iTunes since its launch in 2003, but there is room for growth.

The NPD Group found that CDs accounted for 65% of all music sold in the U.S. in the first six months of the year, with digital downloads making up the remainder.

Apple could expand this by pushing more of multimedia experience, according to Gandhi.

"They might want to grow that by offering other things like the rumored 'cocktail' project," she said. "That seems to me more realistic than any other speculation that we have seen."

An attempt to stimulate digital sales of albums, the cocktail project is said to involve interactive booklets and sleeve notes bundled with music downloads. The Financial Times recently reported that Apple is already working with music labels such as EMI and Sony Music ahead of a September launch.

Intriguingly, the invites to tomorrow's event bore the Rolling Stones lyric "it's only rock and roll, but we like it," hinting at some form of high-profile music announcement.

Ultimately, though, Apple's iTunes strategy may be something a sideshow in its broader consumer tech circus.

"They essentially see themselves as a device company," said Gandhi. "iTunes is a good business for them, but it's not what drives them."

-- Written by James Rogers in New York.