On December 4, 2009, Apple confirmed its acquisition of music website Lala, the market leading cloud-based music library service. CSMG believes Apple’s move is driven not by the incremental revenue opportunity but by a strategic focus on creating mobility for its popular iTunes platform (Lala’s revenue is likely small and Apple already has more than 70% market share of US legal online music downloads). Lala’s music service, which allows users to sync their locally-stored digital music library with a cloud-based music library, will allow iTunes users to manage and access a single music library across all of their disparate devices (laptop, desktop, mobile device, wireless media player). In addition, Lala’s technology could eventually serve as a platform for streaming iTunes content of any kind from the cloud (music, movies, TV, personal content) and not just music, further extending the capabilities of the iPod/iPhone and iTunes ecosystem.

Since Apple has grown its connected product lineup from desktops and laptops into iPods, iPhones, and possibly the rumored upcoming media-centric tablet, maintaining a seamless content library user experience is critical. We believe Apple is betting on the many significant and growing benefits of cloud-based media libraries and as we discussed in our Spring 2009 Viewpoint, “Digital Music Moves to the Cloud”, we expect to see this trend continue in the digital content market over the next 1-2 years.

Lala has a strong position in online music streaming and management and has already gained traction with notable players such as Google, Facebook, and Pitchfork Media as the cloud-based music provider of choice. Interestingly, Apple’s acquisition again puts it in a precarious position with Google, who recently integrated Lala’s music content into its search results for all songs and artists.

Please refer to the CSMG Spring 2009 Viewpoint “Digital Music Moves to the Cloud” for more information.

CSMG expertise in digital content:

CSMG serves as a trusted advisor for many of the leading players in the digital content industry. Our clients include content owners in publishing, music, video, as well as network operators, platform providers, and investors. CSMG has conducted detailed assessments of the value chain and varied business models in the digital content space. Our expertise includes: market sizing, opportunity assessment, business model development, partnership development, competitive assessment, strategic planning, due diligence, and valuation support.

To find out more, please contact Rajesh John: rajesh.john@csmg-global.com