On the day Apple announced record first-quarter revenue, Phil Leigh, senior analyst at Inside Digital Media, talked with Billboard about how Apple is going to change how music is discovered, shared and experienced - and how record labels have no choice but to join along.

Last month, Inside Digital Media issued a 68-page report titled "The Future of Apple". Download the three-page prospectus here. Among Leigh’s conclusions is that Apple will introduce products involving the digital living room and media and transactional online services.

The iPhone and iPad, he says, will transform the nature of media consumption by driving discovery and sharing. These always-connected devices will make their way into consumers’ cars, he predicts, and fill the void left by declining radio listenership.

Most notably, Leigh expects the iPhone and iPad to be the vehicles through which to launch both ad-supported and premium subscription services. Apple’s acquisition of Lala has yet to bear any visible fruit, but Leigh thinks they’re on their way and will be crucial to record labels and publishers because of the sharing and discovery they will enable.

Billboard.biz: Let’s talk about the next wave of change coming to Apple and iTunes.
Phil Leigh: As you know, we put out a new research report, published in March, on the future of Apple. In the context of the music business, we think one of the most important conclusions from that analysis is that online access to large libraries of music on portable devices – like the iPhone – will be crucially important in the success of the record label and music publishing business. The principal reason is that the radio is losing audience and its ability to popularize new releases. Clearly the Internet is going to be a natural replacement for that. The reason for the amplified emphasis on this now is that mobile devices are making it possible to play music in the car. If you get a service like Lala, for example, which Apple acquired, on an iPhone, enabling people to play that through their car stereo system, amplifying and magnifying the capabilities of that service, to popularize new releases as well as popularize old releases. For example, with online services it’s easy to share that track with members of your Facebook network or places like Classmates.com, for example. You can also do a search for lyrics or a song and Google will return information about that artist but in many instances will make available a full playback stream of the song. This kind of thing will popularize new releases as well as old releases.

So you envision the iPhone and/or iTunes eventually replacing radio for a lot of people. Is it going to be based on something similar to Lala now, where there is free streaming or limited free streaming and purchasing?
The impression I get now is that the service cannot be put on to the iPhone because it’s not authorized by the labels and publishers. They are wary of permitting that because they’re concerned it will adversely impact demand for CDs. But, if they did give their OK, I think you’d ultimately see two types of Lala services and it would be much like it is today except there would be commercials interrupting like there is on radio. But it would be free and it would pay for itself with the commercial advertisements. That would enable people who didn’t want to pay anything to discover new releases and share them with their friends on Facebook, do searches to listen to these new songs and thereby discover new music. Those who want to avoid commercials can pay for a subscription service, which I think does have the opportunity to gain popularity now because of the change in paradigm. Connected online devices like the iPhone and iPad available in the car is like 30 or 40 years ago when HBO became part of the cable network. It was an added premium subscription service that most people didn’t get because they were willing to watch whatever was available on TV that was afforded by advertising. But a few people would pay because they wanted the content and avoidance of the commercials.

You’ve encouraged content owners such as record labels to work with Apple. Does Apple have so much innovation and so much value to provide to content owners that they can’t refuse to say no?
With radio audiences in decline, I don’t think there’s much choice but to turn to the Internet. So, that’s the clear option. As you decide to turn to the Internet as a medium to popularize new releases, then you have to choose which companies can do that effectively. If you leave Apple out of the picture, then really you’re just shooting yourself in the foot.

Other than video, how do you see the iPad being used for music?
The iPad is going to be a heavy media consumption device. But it’s not just going to be video. It’s going to be newspapers and music as well. Once consumers get accustomed to using the iPad for consuming music, they’re going to automatically discover that it’s easy to share the music and search for music on Google and get free playbacks. That is going to significantly stimulate the demand for new releases and popularize new releases because it will enable music to get shared in ways it never could. If you think of the iPad or the iPhone as a mutant form of a handheld radio, it’s kind of a radio that enables to say, “I really like that song, let me immediately share it will all my friends.” That’s the way music is popularized. There’s never been a way technically to do that before. Now it’s going to become routine because these devices are affordable, they’re always connected and about 60% of music listening is in the car and they can easily connect to car stereos.

iPad sales are off to a pretty good start. Is there going to be enough penetration right now for the iPad to make a big difference, or is this going to be over many years we see these changes?
I think we’re seeing the changes now because we’re seeing the proliferation of mobile devices like the iPhone, the iPad and Android devices. There’s just no turning back. The floodgate is open. It’s going to take a while for the lake to drain but it’s clearly not stopping. Radio is facing a long-term decline that the record labels will have to address. They have no choice but to turn to the Internet. Especially now that the wireless Internet, the portable Internet, is coming of age.

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