Apple (AAPL) gave Spotify the go-ahead for its streaming-music iPhone app last month. But the service doesn’t have deals to distribute music in the U.S. yet. RealNetworks’s (RNWK) Rhapsody, however, does have deals, and its app just got Apple’s nod.

So. If you want on-demand access to nearly any song you want, it’s all yours: You’re just going to need to pay Real $14.99 a month for its “Rhapsody-to-Go” subscription service.

What’s that? You like the idea of getting all the music you can eat on your iPhone, without listening to ads, but you don’t want to pay for it? Alas, no dice. Spotify mobile users in Europe are paying, too–about $16 a month–and if and when the service gets distribution in the U.S., you can expect to pay about the same.

So will anyone pay for either app? Good question. Best Buy’s (BBY) Napster says that the pricing level is too high and that it won’t offer a music app until it can get the labels to charge less for their music, adding that it thinks $5 a month is a reasonable charge.

And up until now, Rhapsody hasn’t had a whole lot of luck with its “to go” subscription pricing. But! Up until now, Rhapsody wouldn’t work with Apple’s iPod, which has made it a very, very hard sell. Now it has a very large base to sell against.

Will that make a difference? We’re about to find out.

Here’s a video that previews the app.

Rhapsody on iPhone from Rhapsody on Vimeo.

What about the company’s awesome new iPhone app, the one that will let you stream music directly to your handset? You know, like the one that Apple (AAPL) just approved for Spotify, the superhyped service you can’t even get in the U.S. yet?

Don’t hold your breath says Best Buy (BBY). That Napster app is not coming anytime soon. And neither are apps for Google’s (GOOG) Android platform or Research In Motion’s (RIMM) BlackBerry.  And it’s because of those darn music labels. From a press note the company sent out this morning:

One of the most common questions Napster receives is, “When will you offer an iPhone app?” Well, Napster has created an iPhone application that allows subscribers to stream music on-demand to their iPhone—including personal playlists, albums and radio stations. You can imagine the company is also looking at streaming applications for several other mobile platforms as well (Blackberry, Android). However, due to the high licensing fees for streaming to a mobile phone, Napster has not yet submitted the iPhone app to Apple for approval or attempted to bring the application to market.

Now that’s an interesting approach–something akin to showing off a shiny new sled in a toy store window below a sign that reads “Not coming soon, not our fault.” Or that bank ad where the jerk takes the truck from the chubby kid.

I also don’t know if Napster’s explanation tells the whole story: Best Buy/Napster and the big labels already have an agreement that lets the company stream unlimited music to your PC for $5 a month. Just how much more would the company have to charge to accommodate the fees the labels want for mobile streaming? I’m supposed to talk with Napster folks later today, and if there’s anything I can pass along, I will.

UPDATE:  A little clarification from Napster president Brad Duea. His company’s position is that it doesn’t want to move about its $5 a month price, and that it would have to do so in order to offer streaming.

Why would it have to do that? Duea won’t spell it out. But henotes that RealNetworks’ (RNWK) Rhapsody, which has submitted an streaming music app to Apple, charges $15 a month for “on the go” service it already offers, and assumes it will charge the same for a service that works with the iPhone. Similarly, Spotify charges the equivalent of $16 a month for its premium service in the UK.

Of course, it’s possible that RealNetworks or Spotify will try subsidizing some of the cost for a mobile app in order to grab market share, and offer their iPhone/mobile services for something closer to Napster’s $5 fee.

The service took one step toward wider distribution today when Apple (AAPL) approved its iPhone app (for a glimpse of the app, see the video at the bottom of this post). But that won’t help U.S. users until the big music labels–Warner Music Group (WMG), Sony (SNE), EMI and Universal Music Group–agree to American distribution deals.

But before we get to that, let’s back up and explain what Spotify is: A streaming-music service that lets you listen to whatever you want whenever you want, as long as you have a Web connection. A free version comes with ads, and if you want to do away with those, you can pay for a subscription.

Does that sound familiar? It should. There are plenty of models like this available in the U.S. right now, from RealNetworks’s (RNWK) Rhapsody to MySpace Music, a joint venture owned by News Corp.’s (NWS) social network and the big labels. For various reasons, equivalent (and legal) models have been much harder to come by in Europe, which explains part of the appeal there. The other explanation is that Spotify works beautifully.

But don’t take my word for it. Ask Slate.com columnist Farhad Manjoo (“The best streaming music service in the world”). Or better yet, Facebook CEO Mark Zuckerberg (“Spotify is so good”).

Meanwhile, investors–primarily European ones–have been throwing money at Spotify, and the big music labels’ international arms are enthusiastic partners (and equity shareholders). And the company’s boosters have been pointing to a U.S. launch as early as the fourth quarter of this year.

So let’s assume this happens. What then? The problem with the digital music business, as company after company has found out, is that it’s a miserable business:

• Selling music by the track is a low-margin affair that only works if you have enormous scale–Apple sells some two billion songs a year.
• It’s been nearly impossible to get more than a few hundred thousand people to pay a monthly fee for music–ask Rhapsody or Best Buy’s (BBY) Napster, which have been slogging away at this for years without gaining any traction.
• And it’s been impossible to support a free service with advertising while ponying up big licensing fees to the labels–ask Imeem, et al.

So why will Spotify be any different? Depends on whom you ask. Some figure that it has the best chance of working as a mobile service and that since phone users aren’t used to the idea of getting all the music they can eat on their phones for free, they’ll pay up if given the chance. Others think the big labels have gotten wiser and/or more benevolent about their licensing fees and are willing to wring less out of Spotify at the start in the hope that it will pay off down the road.

Still others just shrug and figure it will work out somehow because…well, one of these days, someone has to figure out how to make this work. “Everybody loves the product,” says an industry executive familiar with the company’s plans. “And there’s a hope that the business model is realistic.”

I have heard rumbling that not all of the big labels are equally enthusiastic about a U.S. licensing deal. It’s unclear whether that’s due to something specific about the U.S. market or to internecine squabbles at particular labels. But Spotify will need at least three of the big four to play along. And then we can see just how realistic the model really is.

But I have a question: Whatever happened to eMusic’s search for a new CEO?

David Pakman, who ran the company since 2005, left last fall to join Venrock, the Rockefeller family’s venture capital arm. Last I heard, in late October, the company was “looking at a handful of very qualified candidates” to replace him. And in the meantime, eMusic Chairman Danny Stein–who runs the investment company that owns eMusic and who ran eMusic himself prior to Pakman–was serving as interim CEO.

So who’s the new boss? Same as the old boss. It’s also old news.

Stein says that’s he’s going to run the company for the foreseeable future, and that he figured that out way back in December: He just never announced it. “It was an easy decision to make”, he says.

Stein says he saw plenty of “very capable people”  but figures, a la Dick Cheney, that he was the right man for the job. He also says that the various headhunting companies who say they’re helping eMusic find a new CEO are doing so without his knowledge (or dollars).

Fair enough! The bigger question, as it has been for many years, is how eMusic fits into the larger digital music ecosystem. It sells DRM-free MP3 downloads, which some consumers like, via a subscription service, which most consumers don’t enjoy. Stein says the company has around 400,000 subscribers, and that that number has remained stready for a while. But he says his topline revenue still grew 40 percent last year, to $70 million. (No word on profits or lack thereof).

That’s a pittance compared to Apple’s iTunes (AAPL)  store, which moves about $2 billion worth of songs every year. And while eMusic was once a couple of signatures away from selling to Amazon (AMZN), that window looks like it’s closed, as the retailer launched its own MP3 store a year ago.

But perhaps there’s still an M&A opportunity for eMusic for a different retailer that wants to get into digital goods; Best Buy (BBY) did something similar when it bought up Napster last year.

Neither company will disclose how much money Best Buy (BBY) is putting into the fund, so it’s difficult to gauge how big a deal this is, or isn’t. But we do know that the retailer has already shelled out $121 million for Napster, so presumably it’s ready to spend that much again, at least. Another sign Best Buy is serious about this whole digital thing, or at least wants to signal that it is: Multiple sources tell me it has created a position for a chief digital officer and is searching for one now.

The deal also signals that Velocity, the firm Levinsohn created with former AOL CEO Jon Miller, will continue even though Miller is now heading up digital operations for News Corp. (NWS), which owns this Web site.

Miller took Velocity partner Jorge Espinel with him when he joined News Corp., but Levinsohn, who earned his reputation when he helped News Corp. buy MySpace (following this?), will be staying on. Oh, and for good measure, Velocity is changing its name to Fuse Capital. Presumably there’s a good reason for that, but the press release below doesn’t spell that out.

VELOCITY INTERACTIVE GROUP CREATES NEW DIGITAL MEDIA FUND WITH BEST BUY;
MARKS LAUNCH OF STRATEGIC EQUITY MANAGEMENT INITIATIVE FOR FIRM

Velocity to Change Name to Fuse Capital
Los Angeles – May 28, 2009 – Velocity Interactive Group, a leading venture capital firm in digital media and communications with more than $1.4 billion under management, today announced a strategic partnership with Best Buy that includes the launch of a new digital media fund.  With Best Buy as the sole limited partner, the fund will seek to leverage the scale and scope of the multinational consumer electronics retailer to help drive growth and enhance performance of the portfolio companies.  The fund will focus on strategic digital media investments as a complement to Best Buy’s current digital media and emerging technology investment activity.  Separately, Velocity is also announcing that it will change its name to Fuse Capital.

The new fund is designed to focus on investments in digital media companies that will help create the next generation of leaders in categories such as music, video, games, and personal media management, as well as other areas that leverage the touch points and reach of Best Buy.  As part of the relationship, Fuse will work closely with Best Buy on digital media strategies and support the company’s existing digital assets.

The Best Buy partnership marks the launch of Fuse’s expansion into strategic equity management. The focus of the strategic equity management initiative is to become partners with global corporations that seek to augment their digital strategic initiatives with the knowledge and expertise of an investment firm dedicated to digital media and communications.  Fuse’s portfolio will benefit from the partnerships with these global corporations which enable them to jump-start and launch with critical mass, greatly improving the likelihood of success.  Fuse’s decision to change its name from Velocity to Fuse Capital reflects this strategic focus.

“This strategic initiative is a natural extension and evolution of our capabilities, given our firm’s extensive strategic, investment and operational experience in both emerging companies and large corporations across digital media,” said Ross Levinsohn, managing partner, Fuse.  “As for our first partner, Best Buy is the preeminent retail leader in technology and entertainment products and services, and is exceedingly well positioned to take advantage of the massive shifts occurring across the media and commerce landscapes.”

“This partnership is another example of how we strive to be at the forefront of consumers’ entertainment and digital lives,” said Mike Vitelli, executive vice president, customer operating groups, Best Buy.  “We are pleased to be working with Fuse and look forward to working with them to lead the market transformation in digital media.”

Pumped up about the potential for e-books? So is Stephen King.

Just as he was nine years ago.

The Wall Street Journal, Feb. 4, 2009:

In a sign that the electronic book is gaining clout in the publishing world, Amazon is also expected to say it has acquired a new work by best-selling novelist Stephen King that will be available exclusively, at least for a time, on Kindle.”

Forbes, Aug. 21, 2000:

STEPHEN KING HAS JUST RELEASED his umpteenth scary novel, and it particularly horrifies the publishing industry–but stirs new hope among those engaged in a long-thwarted pursuit: the electronic book.

E-books used to get lumped in with the same science-fiction stuff as jetpacks and lunar colonies. Suddenly they are present tense. A few months ago half a million people downloaded a Stephen King novella, the first big splash. Now King is bypassing Simon & Schuster to release his next novel online, selling it for $1 a chapter. Some 41,000 fans downloaded Chapter 1 in the first 15 hours.

‘My friends, we have a chance to become Big Publishing’s worst nightmare,’ King says on his Web site.”

My point (besides the fact that Forbes writer, circa 2000, Peter Kafka may be going places–keep an eye on that guy)?

Only this: Whether Amazon’s (AMZN) Kindle is a big hit or a modest one, we’re probably going to have to wait some time before digital books are a mainstream reality.

These digital revolutions always take longer than they should–just ask the music business, which sells a product that is already delivered in digital form yet derives just 20 percent of its revenue from digital products–a full nine years after the original Napster. Don’t plan on ripping down your bookshelves just yet.

[Image Credit: Tabitha King, via StephenKing.com]

Increases in digitally downloaded albums and songs were not enough to offset a nearly 20% plunge in CD sales in the U.S., according to year-end figures published Wednesday by the Nielsen Co.’s SoundScan service… U.S. album sales including digital downloads fell 14% for the year, while factoring in individual song downloads, sales were off 8.5%.”

This is either the seventh or eighth year in the last decade where you could have run a similar paragraph, depending on who’s counting. The big picture is that the industry peaked in 2000, when online file-sharing/stealing/swapping/whatever-you-want-to-call-it became mainstream. It has yet to recover.

That recovery is still a long way off. Despite years of talk, the industry is still yoked to the inexorably declining CD business, which makes up the overwhelming majority of its sales and profits. So it’s going to keep declining for quite a while before it bottoms out.

The good news: If you’re only interested in listening to good music, and don’t care about the industry behind it, you have more options than anyone has ever had in the history of man. Enjoy yourself, and have a very merry new year. See you in 2009.

[Image Credit: Backstreet Boys concert photo, which has nothing to do with the clip above, via Anirudh Koul]

Bad news, Internet music, movie and other content “sharers”: The content companies are trading their sue-’em-all strategy for one that leans on Internet service providers to help them fight their battles for them. This may ultimately be much more effective. Here’s how it will work, via The Wall Street Journal:

The [Recording Industry Association of America, the music industry's trade group] said it has hashed out preliminary agreements with major ISPs under which it will send an email to the provider when it finds a provider’s customers making music available online for others to take.

Depending on the agreement, the ISP will either forward the note to customers, or alert customers that they appear to be uploading music illegally, and ask them to stop. If the customers continue the file-sharing, they will get one or two more emails, perhaps accompanied by slower service from the provider. Finally, the ISP may cut off their access altogether.

The RIAA said it has agreements in principle with some ISPs, but declined to say which ones.”

The fact that the big labels are going to stop suing people who “share” their music via P2P services is the least interesting development here. That’s just the industry accepting that it lost a battle that ended years ago. In Q3 of this year, the volume of music swapped on via P2P increased 28 percent, says NPD.

More interesting is that Big Music thinks it has finally found an ally in the ISPs, who have traditionally been just fine with letting their subscribers swap all the music they wanted. It’s not clear what incentive they’ve offered to get the ISPs on board. And note that the WSJ doesn’t identify any ISPs that have actually signed on to this strategy. So this still may not be a done deal.

But the people who sell you Internet access–whether its the cable guys like Comcast (CMCSA) and Time Warner Cable (TWC), or telcos like Verizon (VZ) and AT&T (T)–have already shown a general inclination to help content owners fight piracy. Or at least help them fight particular kinds of particularly egregious piracy.

They’ve been doing so by trying to limit, in various ways, your ability to swap lots of files with other people. Some of these strategies have been clumsier than others.

Last year Comcast tried “throttling” the connections of broadband subscribers using some file-sharing software–a ham-handed approach (particularly the lying about it) that earned them a wrist-slap from the FCC.

But other companies have been more upfront about telling subs that they reserve the right to cut off file-sharers. A different approach that many are contemplating: simply charging heavy file-sharers a lot of money.

Do the ISPs really care about the sanctity of copyright? Doubtful. But they do care about the cost of moving lots of data around–and those costs are only going to increase as consumers start consuming more and more video over the Web.

And at least in the case of Hollywood, they do care about keeping content creators somewhat mollified, since all of the ISPs want to make money by selling, renting, or just offering up Hollywood’s movies and TV shows to subscribers.

So I’ve always understood why Comcast was standing up for the likes of Sony’s (SNE) movie studio. But why is Comcast (or its peers) going to start working on behalf of Sony’s music group? I’m all ears.

This move should temporarily boost traffic at iMeem, which finds itself competing for the ability to premier new releases with rival music services like iLike, MySpace, Rhapsody, et al. Last week, for instance, MySpace got bragging rights over “Chinese Democracy,” the sort-of-long-awaited album from Guns N’ Roses.

But it’s unclear whether these premieres actually help Britney or her label, Sony’s (SNE) Jive: Few of the visitors to MySpace’s GNR page stuck around to listen to the whole album, and hordes of GNR fans don’t seem to have flooded Best Buy (BBY) stores, which have an exclusive on the disc.

But who cares? That’s tomorrow’s problem. For now: Free Britney Spears!

The details, from MusicWeek (via Coolfer): You give the company 100 British pounds, and for the next year you can download all the music you want. And because you’re downloading the files in the unencrypted MP3 format, they are yours to keep, and yours to do whatever you want with: Play them on any Apple (AAPL) iPod or iPhone, make copies, burn them to CDs, etc.

Are there catches? Of course: The offer is only available to U.K. residents, who have to use a special USB dongle to make the Datz software work, and it only works on PCs running Microsoft’s (MSFT) Windows, for now. Most crucially, the company only has music from two of the big four music labels–EMI and Warner Music Group (WMG)–and it doesn’t even have all of those companies’ new releases, but a “wide selection of new music released in 2009.”

But play along, for just a minute. Say Datz does end up striking deals with Sony (SNE) and Universal Music Group (and the other big indies), and does end up getting most of the majors’ catalogs. And say Datz is still able to keep the price point about the same: Something in the $15 a month range for unlimited music to own. Could that work, from both a consumer and industry perspective?

Yes. It could.

That’s around the same price point as music subscription services offered by RealNetworks’ (RNWK) Rhapsody and Napster’s (NAPS)/Best Buy’s (BBY) Napster.com. The big difference: Those services only give you access to music, not ownership. And while I’m not hung up on owning music as long as I can get what I want when I want, I’m in the minority on this one.

But if you could hang on to your music–and not have to worry about what format you’re using, since MP3s will work on all formats–then that seems like a compelling offer. The thought of shelling out $162 in advance will likely give people pause, but presumably Datz could figure out a way to extract the payments, à la the mobile carriers, over a one-year period.

Meanwhile, $162 a year is much, much more than most people were ever spending on CDs, even during the format’s boom years. And those, obviously, are long gone. Today the industry would be pleased if the average consumer spent $20 a year on music, no matter what format it’s in.

And yes, we know what many of you are going to say: Why pay for music at all when I can steal whatever I want? Or the faux-sophisticated alternate version: Music should be free! Because it can be replicated for no marginal cost!

Well, can’t argue with that–unless you’re in favor of compensating people who create intellectual property for their work. And I’m one of those old-fashioned types who still thinks that’s a good idea. Hope Datz can pull this off.