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Thursday, February 24, 2011, 05:45 pm PT (08:45 pm ET)

Apple reportedly clarifies its cloud strategy to the music labels

Apple has reportedly informed music labels that it wants to protect the existing market for paid song downloads, positioning its cloud strategy for iTunes as a form of "insurance."

Apple has consistently pushed for direct downloads in iTunes, as opposed to the rental music subscriptions services offered by Microsoft and Rhapsody, or the streaming music on demand services operated by today's Pandora, Rdio, and MOG.

As news began to leak about its online plans over the last two years, it remained clear that Apple viewed music as a downloads business, with its proposed online services aimed at acting as a convenient option for users to store their purchased music in the cloud for network access while mobile.

At the end of 2009, Apple acquired Lala, a business based around selling both downloads and the right to play online songs, as well as the ability for users to upload their own music for remote playback from various devices.

Apple shut the site down last spring amid rumors that it hoped to use Lala to build its own iTunes cloud service around the concept of enabling users to upload their music to Apple's servers for online playback.

Reports have noted that Apple's cloud plans for iTunes seemed to be thwarted by the labels, who wanted additional performance royalties from Apple for allowing users to play back their purchased downloads from its servers.

A new report by the Financial Times says that a "person with knowledge of Apple’s plans said the company did not want to undermine the market that it dominates for paid downloads, likening its plans for the cloud to 'insurance.'"

This contrasts with the plans by the Swedish Spotify, which rather than selling downloads like Apple or Amazon, is seeking to stream unlimited music to subscribers on desktop or mobile systems, or for free with radio-style ads. Songs can also be purchased from Spotify's music download parter.

Spotify is in talks with major US labels to begin offering the service in America; it is currently available only in Spain, France, the UK, the Netherlands, Finland, Sweden and Norway. Sony Music and EMI have reportedly already signed deals with Spotify, while Warner and Universal are said to still be in talks with the music service, aiming for a summer launch. Both are said to be wary about how much free music the service will offer to unpaid listeners.

Following the collapse of CD sales, digital downloads are said to be slowing as well, leaving the labels increasingly worried about the business prospects of prerecorded music going forward. Both EMI and Warner are being shopped around for a buyer, making the outcome of Spotify talks an important factor in their valuation.

Google is also expecting to launch a music business, and according to the report has indicated to labels that it wants to open a store by next month, but it does not yet have deals in place to sell their music. Like Apple, Google hopes to mix a downloads store with the ability for users to bank their music in the cloud for flexible, remote playback.

Apple's plans to set up subscription in app purchases have been criticized by a number of service providers who offer content through apps, suggesting that the company's 30 percent cut of sales made within iOS apps will drive them out of business. It isn't yet clear if Apple's plans for periodicals actually even apply to Software As A Service or other online content access apps like Spotify, Hulu, Kindle, or Netflix, however.