Apple strikes a new chord for the future of music

More than a decade ago, the late Steve Jobs pulled one of his trademark reality distorting manoeuvres, browbeating music label executives into selling songs on Apple Inc's then-nascent iTunes digital store for a mere 99 cents apiece.

Now, the tables have turned and it's Apple that is being forced into a deal that is far from a sure-fire winner.

The iPod and iPhone maker is expected to announce as early as this week a $3.2 billion agreement to buy Beats Electronics, the music streaming service and headphone maker founded by legendary music producer Jimmy Iovine and rapper Dr Dre, according to three sources familiar with Apple's thinking.

The deal would come after Pandora Media Inc and Spotify have already claimed the vanguard of the music streaming revolution, while Apple's riposte - the eight-month-old iTunes Radio - is stumbling.

"Apple is about two years late, behind Spotify," said David Pakman, a digital music investor with Venrock Capital and a co-creator of Apple's Music Group. "They need a streaming offering."

With digital music downloads in decline, record labels have put pressure on Apple to get its act together on streaming, according to two of the three sources.

The record labels hope Apple can turn Beats Music into a strong competitor with Spotify and other streaming services, the sources said.

"The labels wanted Apple to build a premium service," said one of the sources, who like the others were not authorised to speak about the matter on the record.

"They wanted ... to make money through the stream." In recent months, the major labels had grown dissatisfied with the performance of iTunes Radio, the source said.

Streaming subscriptions are now the fastest-growing revenue source for the music industry, but Apple has not made a dent.

Streaming subscriptions jumped 51 per cent in 2013 to $1.1 billion, out of a $15 billion total spent on music, according to the International Federation of the Phonographic Industry. Meanwhile, digital downloads slipped 2.1 per cent.

In buying Beats, Apple would get an up-and-coming music streaming service, a well-connected team of industry executives, and high-margin hardware.