iTunes, Digital Music Fly Into 'Cloud'

BOSTON ( TheStreet) -- When companies such as Apple ( AAPL) and Microsoft ( MSFT) help the music industry ascend into the cloud, they may want to take their users' digital collections with them.

Streaming services including Pandora, Rhapsody and Spotify continue to gain traction among millions of listeners but, according to a report from Forrester Research ( FORR), 58% of adults in the U.S. who used the Internet in 2009 still maintain a digital music collection.

With their numbers rising from 54% in 2008 and with a mean average of 1,200 songs in their collections, those consumers have amplified their say in the future of cloud-based music content, in which songs are provided to computers and other devices on-demand.

"If everything goes into the cloud and all you're doing is listening to Rhapsody, you're not going to give up the music you already have," says Sonal Gandhi, a Forrester analyst and lead researcher on the recently released report "The Growing Significance of Digital Music Collections." "You've spent time and money collecting the music and making those playlists, and that time and money needs to be accounted for."

Forrester's findings come as music-related companies suffer a drop in demand. Nielsen Soundscan said last month that digital-music sales were down in the first quarter, while the biggest music company in the world, Vivendi's Universal Music Group, had a 1.7% digital drop as part of a 13% plunge in overall quarterly music sales.

Against that backdrop, digital-music consumers are still in a state of flux, if not confusion. Though the online user has embraced the digital medium, Forrester finds that about 52% of his library comprises music ripped from compact discs and only 17% purchased online.

The options are complicating matters, as Google's ( GOOG) Android, iPhone, Palm ( PALM), Research In Motion's ( RIMM) BlackBerry and Nokia's ( NOK) Symbian smartphone operating systems all run their own music-management software. Meanwhile, Sony ( SNE), Panasonic ( PC) and Samsung hardware also have their own take on digital-music management.

Even when a cloud-based service does span several platforms, like Pandora or Sony favorite Slacker Radio, the attachment to a personal collection is often sacrificed for portability. It's the reason such streaming services have been successful in introducing subscription plans, but it also addresses a need that traditional online music stores aren't meeting.

"Our entire service is cloud-based, so you have one account that follows you around wherever you go," says Jonathan Sasse, senior VP of marketing for Slacker Radio. "Whether I sign in on my phone, Web browser or television, that experience is mine and follows me and my behavior anywhere else."

Companies that have tried to bridge the gap between personal music collections and the cloud have had limited success in the U.S. Streaming company imeem allowed users to upload 100 of their songs to imeem's cloud server for free, 1,000 songs for $29.99 a year and up to 20,000 songs for nearly $100 before it was purchased by News Corp.'s MySpace and shut down last year.

Spotify offers both free streaming and the ability to import from Apple iTunes and other private collections, but is restricted to seven European countries through its agreements with Universal, Sony Music, Warner Music and EMI.

The best hope, Forrester's Gandhi says, may lie with traditional media like Microsoft's Zune and Apple's iTunes. Citing Apple's purchase of online-music store LaLa last year, and that store's subsequent shutdown in May, Gandhi says the best way forward may be for iTunes to adopt LaLa's policy of making any song you purchased for your personal collection available in the cloud as well.

"If you just keep giving users a wonderful experience in the cloud, but don't do anything to existing libraries, some heavy music fans are just going to move into the cloud," she says. "While it'll be great to get $10 a month from them, they're better customers who spend more buying music and you don't want them to stop that behavior if you're a record label."

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Jason Notte is a reporter for TheStreet.com. His writing has appeared in The New York Times, The Huffington Post, Esquire.com, Time Out New York, The Boston Herald, The Boston Phoenix, Metro newspaper and the Colorado Springs Independent.