When the Napster brand woke up the music industry using illegal downloading almost a decade ago by allowing digital music swapping across the internet, a completely new cottage industry was born. Pretty shortly, Apple, Inc. (NASDAQ: AAPL) came long with its iPod and iTunes product and made the business model work for legally downloading music. On that note, Apple has the lion's share of music downloading business at this time, although many a competitor has cropped up in the last five years.

An interesting article from the BBC takes a look at how file-sharing web sites can actually make a music act more popular. In fact, the research cited in the article shows that the most-pirated songs tend to be those at the top of the charts.

Think of the potential impact of this on Apple (NASDAQ: AAPL). I remember the halcyon days of Napster and the likes, when you could go online and find songs from various artists (I even found Scruffy the Cat on Napster, not an easy task) and download as many as you want.

Well, when the RIAA and Metallica decided to wade into the fray -- sites like Napster were either summarily shut down or had to start charging for their services.

So, according to this piece out on Reuters, Napster (NASDAQ: NAPS) is in a fighting mood. It recently created an MP3 download site that contains over six million tunes. Apple (NASDAQ: AAPL) has been doing gangbuster business for years with its iTunes juggernaut, so it only stands to reason that from now until doomsday there will be initiatives aimed at stealing a little bit of the big guy's thunder. Whether it's Amazon (NASDAQ: AMZN) or Wal-Mart (NYSE: WMT), Apple will always have challengers.

Question is, does this matter? Should Steve Jobs and his Apple shareholders be shuddering in their collective boots? Probably not, although any competition should be taken seriously, I suppose. I grant you that Napster is a recognizable name when it comes to web-based music commerce (heck, Napster started all the peer-to-peer ruckus way back when), and that six million compositions represents an awesome depth of musical inventory, But come on, Apple has staked out one of the most vital components of a successful business: unmatched brand equity.

Simply put, Apple's brand in music downloads is as powerful and iconic as Coca-Cola's brand is in soft drinks. Yes, the Napster service, according to the article, will have an important competitive component, namely the ability to transfer songs to other devices, including the iPod. Napster, as many of you probably know, markets a subscription-based service, but you can bet that management will now concentrate on this download asset.

Billboard reported Wednesday that Warner Music Group (NYSE: WMG) suffered a $16 million loss during the first fiscal quarter of this year, which ended on December 31, 2007. This is the result of shutting down a concert promotion company, and the loss also contrasts with the $18 million income the company enjoyed in the same period a year ago.

Despite this loss, the music giant still managed to increase domestic sales up 10.5% in the face of album sales dropping 14.6%, and international sales also increased by 2.7%. The company told Billboard that the growth was due to labels Warner Bros. Records and Atlantic Records "capturing the No. 1 and No.2 rankings in U.S. market share and to a strong showing in digital revenue." According to the same piece, the revenue from digital sales was 14% of all revenue, but still not a significant increase over past figures.

With investor interest high in China, this hasn't been lost on corporate investment. Companies must face the decision about how to address the Chinese juggernaut: essentially, to build, buy, or partner.

PaidContent.org has a story this morning that the Internet giant, Google (NASDAQ: GOOG), is close to launching a joint venture to offer free music downloads in the Chinese market.

According to PaidContent, "Google is in the late planning stages of a JV with Chinese online music company Top100.cn, a Beijing-based site that currently sells licensed music downloads. The new service would permit Google's search engine in China to provide free and licensed music downloads, reports WSJ, citing sources."

This is significant in Google's push to counter leading Chinese search engine, Baidu.com (NASDAQ: BIDU), which already provides links to download sites.

This move may help Google position itself vis-a-vis locally-favored Baidu.

Zack Miller is the Managing Editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund. Author owns a long-term position in Google stock.

The Associated Press last week reported that the record industry is fighting a major losing battle against illegal downloading, which outpaces legal downloading alternatives 20-to-1, causing losses in the billions of dollars. Meanwhile, revenue from digital music sales has not made any inroads toward recovering money lost by the dying CD, rising just 40% to $2.9 billion during 2007 after doubling in 2005 and tripling in 2006. The International Federation of the Phonographic Industry also told the AP, "CD sales fell 11 percent between 2005 and 2006 and were likely to drop further in 2007," and digital revenue "is also showing signs of slowing."

The IFPI also said that "digital downloads have grown in five years to account for 15 % of the world's music sales, with more than 500 legally licensed music sites selling around 6 million tracks of music." The industry's fight against piracy has received massive support in France, where the government of President Nicholas Sarkozy has proposed to have Internet service providers there "automatically disconnect customers involved in piracy." Japan leads digital downloads, both illegal and legal, with sales and piracy mostly working through consumers' phones.

Although this devastating report indicates that the record industry is still in a dire situation, the developments in legal downloading throughout the last few months in 2007 and the first month of 2008 seem to set a more optimistic tone. Whether the disabling of anti-piracy technology from all music labels will allow growth this year, is obviously yet to be seen, but the benefits of the music available now would seem to outpace the availability of media available illegally. The problem of paying for products still remains for those consumers, but the quality of new MP3 tracks is finally at an acceptable level for those that look for the difference.

Sony-Ericsson, the fourth-largest handset company, has announced it will open its own music store for consumers who buy its handsets. According to MarketWatch, the service "will be available in 30 countries worldwide by the end of 2008, starting from May. It will offer more than 5 million music tracks."

With Nokia (NYSE: NOK) and Apple (NYSE: AAPL) already in the same business, it is hard to see how the new Sony-Ericsson initiative will find customers. A number of cellular carriers have services of their own, which means that they compete with their own handset suppliers. Companies outside of the cellular business have also created music download stores for portable devices. The most notable new player in that market is Amazon (NASDAQ: AMZN).

The multitude of download services is not likely to make those getting in late much money. And having so many services in the market will confuse the consumer.

Douglas A. McIntyre is an editor at 247wallst.com.

To an inordinate degree of fuss, British rock group Radiohead self-released its seventh album, In Rainbows, on its website back in October, employing a pass-the-hat pay model whereby downloaders could pony up what they wished for the album, from as much as 100 pounds (about $200) to as little as virtual pocket lint.

The band has kept mum on the actual download figures, as well as their take, but a comScore study on In Rainbows' early success estimated that just 38% -- less than two in five downloaders -- bothered to put up anything at all. comScore's findings -- which Radiohead has disputed -- suggest the band gave out some 744,000 copies of the record for free, not to mention all those unrestricted downloads that bewilderingly saturated the file-sharing piracy sites, despite their free availability.

A Reuters article this morning reports that British-based music company EMI "wants to cut its funding to the industry's trade bodies... which could deal a blow to the fight against music piracy." Trade groups are the entities that "represent music companies and the fight against illegal piracy." Between the four major label groups: EMI, Warner Music Group Corp. (NYSE: WMG), Universal Music Group, and Sony BMG; the International Federation of the Phonographic Industry told Reuters that over $130 million each year goes to funding companies like it and the Recording Industry Association of America.

Groups like the RIAA have an important mission of course, and this plan would severely limit the fight against piracy, but one music industry giant dropping out certainly would not add too much of a burden. We should not be surprised that EMI is the company to come out with this plan, even before Terra Firma took over in September the music giant had dropped the digital protection against piracy (Digital Rights Management technology) encoded into its media files.

File sharing and piracy costs the recording industry loads of money every year (Reuters estimates that value in the billions) but it seems clear that the music industry cannot fight piracy while undergoing a major shift away from the "traditional" markets it has utilized for over 50 years. CD sales are plummeting while digital sales steadily grow. One label may not be able to change how piracy is tackled, but the current DRM-free approach coupled with new resources to market those products might make a difference. What difference, if any, is still to be seen. Just apply the Radiohead approach to everything and let consumers name the price of music. Many surely have some conscience...

AT&T Inc. (NYSE: T) has extended its relationship with internet music provider Napster Inc. (NASDAQ: NAPS), according to Billboard. The new deal makes AT&T the ninth wireless provider to use Napster and includes "over-the-air, full-song downloads" and customer access to Napster's entire 5-million song catalog. With prices of $3 per song and $7.50 per five-pack, customers will also be able to download songs purchased with their phone onto their computer, provided they download the Napster software. However, a subscription service allowing customers to pay a monthly rate for unlimited downloads will not be offered in the new deal.

The Napster deal is the latest in a string of deals for AT&T that increases the amount of music and related media customers can access from AT&T phones. Billboard comments "the move puts AT&T on par with competitors Sprint (NYSE: S) and Verizon Wireless (NYSE: VZ), both of which have offered a full-song download service for close to two years now."

Last month, AT&T made a separate "over-the-air" deal with eMusic to bring Digital Rights Management-free songs to phones. Napster becomes the second "o-t-a" deal for the company, bringing the largest catalog but no DRM-free.

It's no surprise that AT&T would increase the amount of content offered, especially to better compete with other wireless providers. The only drawback seems to be pricing and the lack of a subscription-based service. Of course, a subscription service would curb those high prices, but limit profit for either company in the new deal. The $3 tag for songs on the phone hardly competes with the same tracks online or in other digital music stores, and both eMusic and Napster offer $9.95 subscription services online. In any case, this is a smart move because it does offer more content on AT&T phones and allows the company to compete with other wireless providers directly.

According to a report by Billboard yesterday, Apple (NASDAQ: AAPL) plans to expand and lower the price of the iTunes Store's offering of Digital Rights Management-free music downloads. The new tracks to be added will apparently come from "a variety of independent labels," but unlike the $1.29 DRM-free tracks already provided by EMI Music Group, they will be priced at 99 cents. An official announcement for this new plan is expected later this week.(Read more news about iTunes on TUAW, The Unofficial Apple Weblog).

The early report also indicates that the cost of the EMI tracks may also fall to 99 cents, but the exact rationale for the drop is unexplained. Billboard speculates that a new deal between Apple and EMI may be the reason, or that Apple will simply sacrifice a nice profit margin for the higher-quality, unprotected tracks. Such a price drop would keep iTunes in sync with other digital stores, like Amazon.com (NASDAQ: AMZN)'s new MP3 store. The validity of such a move is questioned by Billboard, and any announcement with the new plan is unexpected.

Apple first offered DRM-free tracks from EMI after an agreement was reached between the two companies in April, but it was not an exclusive deal, and the music has since become available on Amazon and other stores at lower prices. An addition to the DRM-free catalog is certainly nice, but since iTunes only offers DRM-free tracks from EMI and independents, Amazon and other stores have the edge in the market. Amazon offers DRM-free tracks from EMI and other major labels, including Universal Music Group (who halted negotiations for a new multi-year deal with Apple in July).

A new report today indicates that Universal Music Group chief Doug Morris is aiming to create an industry-wide competitor to Apple (NASDAQ: AAPL)'s iTunes Store. According to BusinessWeek, Morris has already enlisted Sony BMG, a merger between Sony Entertainment (NYSE: SNE) and Germany's BMG, and is in talks with Warner Music Group (NYSE: WMG). The service Morris intends to create will be called Total Music and "move digital music beyond the iPod-iTunes universe by nurturing the likes of Microsoft (NASDAQ: MSFT)'s Zune media player and Sony's PlayStation and by working with the wireless carriers."

The move comes after Morris and UMG declined to renew a multi-year contract with Apple in July because Steve Jobs and company would not "ease stringent terms limiting how record companies market their music." At this time, Universal's music remains available on iTunes on a month-to-month basis. The new subscription-based service would ask "hardware makers and cell phone carriers to absorb the cost of a roughly $5-per-month subscription fee so consumers get a device with all-you-can-eat music that's essentially free." In that model, the music companies would take the fee and the manufacturers and carriers would sell more devices, in theory.

The new service is also attempting to bank on calling music a utility that consumers are entitled to own. BusinessWeek comments that this is a lot like the iTunes model but takes it one step further, and reminds us that the music companies have set up subscription services before and failed to maintain a place in the market. The one question that remains is whether consumers buying the devices and subscribing for $5 will be able to keep the music they download? If this model is based on iTunes, then that would be a resounding yes. Otherwise, it is simply another service that takes the control of music "ownership" out of the consumer's hands. It's hardly a utility if you have to give it back.

In an effort to up the ante in the mobile communications game, Sprint Nextel Corp. (NYSE: S) has announced plans to swing the focus in its marketing plan and to place some perspective division between the company namesakes. An advertising campaign directed by Omnicom Group Inc (NYSE: OMC) will be seeking to reestablish the Sprint brand as a mainly consumer focused business after the Sprint Nextel merger left a blurred impression regarding which company division was doing what. The Nextel name, for its part, lays claim to a greater focus towards commercial business.

Sprint wishes to impress the consumer with it's music and navigation offerings while also making a statement regarding the company's network speed. Sprint has had some network issues to deal with in the past but the company indicates that network reliability is expected by consumers at a level which should preclude it from being just a "selling point." Bill Morgan, a senior vice president for corporate marketing at Sprint, stated it this way when referring to the company's impending value added focus, "Our network's a proven commodity . . . People should expect that. They should be getting much more than that."

So you may watch for a new advertising campaign from Sprint which aims to bring the company more into focus. The company has promised us some improved growth but it has had some very tough trials. Sprint needs to show that it offers the consumer distinct advantages over its competition and it needs to do that in a very compelling fashion. Otherwise, the only name it will be defining itself apart from will be Nextel, and that alone just won't do.

As I noted yesterday, rumors dropped recently that Best Buy Co., Inc. (NYSE: BBY) will soon begin offering digital movie downloads from Lion's Gate studios (and most likely, other studios too) in its push to jumpstart the competition in the emerging market for digital content delivery. Yes, Apple Inc. (NASDAQ: AAPL)'s iTunes music store has had this market cornered for quite some time, starting with music downloads and continuing with movie and television show downloads. But, those pieces have been limited to the PC and iPod ecosystem (until the Apple TV came along this year, at least).

Consumers want their content to work across products, manufacturers and standards, which has been the reason why some movie download services have not gotten off to a start at all. When all the technical and content protection limitations are known by customers, they generally react like they should: "I'm just not interested." Best Buy's recent role expansion of an entertainment VP to oversee its U.S. entertainment business, however, shows that the retailer may in fact get its foot deeper into the emerging digital content field (music, movies, possibly more). That is, if it can give the market what it wants: unfettered and easy access to content across devices and platforms.

It's pretty apparent by now that entertainment content is moving towards all-digital delivery. It's cheaper, more immediate and has tremendous cost advantages. At the same time content owners continue to be scared to death that all these advantages could be stamped out by rabid content copying and unauthorized transmission over the Internet (without any payments changing hands). Will Best Buy be the one that makes digital content like music and movies easy to download, use and re-use on a variety of devices? It's recent focus on customer relationship development would point to "yes" as an answer to this question, although Apple has made the first bold move here. Who's next? If it's Best Buy, it will be hard to stop the distribution of digital content soon.

While pressuring the major labels to drop their use of DRM (digital rights management), Apple Inc. (NASDAQ: AAPL) head Steve Jobs took some time to comment on the rumors about the iTunes Store switching to a subscription-based service. His response was that customers do not seem interested in the subscription model, because they want to own the music they purchase (at least from iTunes). At the same time Jobs told Reuters not to rule out the prospect entirely.

This is certainly good news for Apple, especially considering in the wake of these comments the stocks closed higher than they had been all week last week. The prices closed at less than $94 on Monday, reaching as high as $99.95, before closing .03 lower on Friday. The jump between Jobs's comments on Thursday and Friday was 1.08 as well, but the biggest gain was between Wednesday's closing and Thursday's, with over $3 gained.

These numbers may not be as high as Apple or consumers would like, but they represent strong growth for the company, especially as the summer music season arrives next month and the coming launch of the iPhone in June. If that product and Apple TV are a success, and Jobs can continue to pressure labels to drop DRM, Apple may be in sight of a nice summer.