Apple's iCloud Is a Huge Win for Hollywood

Those skeptical of Apple's (Nasdaq: AAPL  ) new iCloud service will say it fails for not offering the iTunes equivalent of Netflix (Nasdaq: NFLX  ) . There's no all-you-can-stream subscription model in iCloud.

So what? Investors who think it's only a matter of time before Apple apes Netflix are probably deluding themselves. They're also missing the point; iCloud isn't a short-term music play. What looks like a ploy to give labels a new way to sell tracks (i.e., via audio upgrades) could one day be transformed into a lucrative video streaming service.

Why iCloud makes sense for Hollywood
Up to now, ownership and streaming have been distinct ideas. No longer. The rise of digital lockers such as Amazon.com's (Nasdaq: AMZN  ) Cloud Player and Google (Nasdaq: GOOG  ) Music mean you can "own" a series of tracks and stream said tracks anywhere. Labels get one sale; listeners get unlimited access. This, in a nutshell, is why Google and Amazon couldn't come to terms with Warner Music (NYSE: WMG  ) and the rest of the industry's big labels before launching their lockers.

Apple has changed the equation while preserving the same "purchase one, access anywhere" dynamic. How? Unlimited downloads. The process is pretty simple. In trying this yesterday I navigated to the icon for "purchased" items in the iTunes Store on my iPhone 3Gs. After settling on Steve Winwood's "Back in the High Life" -- a track not yet downloaded to my phone -- I clicked the cloud icon and grabbed the song. Thirty seconds later it was playing; no USB cable required.

To be fair, Amazon and Google are proposing streaming to any Web-connected device. The OS never enters the equation. By contrast, Apple wants iTunes and the iTunes Store to be the gateway to iCloud in order to encourage (what else?) more device sales. More Macs, more iPhones, more iPads, and, I suspect, more Apple TV boxes.

CEO Steve Jobs is betting that, as consumers, we'll continue purchasing content -- even in the face of all-you-can-stream discovery services such as Pandora and Sirius XM in music and Netflix in video. I think he's right, especially when it comes to TV and movies.

We interrupt this commentary for a word about TV streaming
Last night was the season premiere of White Collar, a crime drama broadcast by the USA Network that my wife and I have come to enjoy. About an hour before air time we clicked over to the interface for Apple TV and navigated to my Mac's iTunes library, available to us because of a neat feature called "home sharing." Three clicks later, we were watching the White Collar pilot in high definition.

Sound complicated? It is and isn't. (I'll get into the details in a minute.) What's important is that USA doesn't offer its shows directly to Apple TV viewers. Nor is White Collar available via Netflix or Comcast's (Nasdaq: CMCSA  ) XFINITY service -- ironic since USA Network parent NBC Universal is now 51% owned by Comcast. I streamed it, but only because I was first willing to download and add the show to my Mac's iTunes library.

Making Macs play nicely
"Home sharing" allows any number of Macs to share iTunes content. Activating it requires each user who wants in to activate the service in the "advanced" menu in iTunes. One account (or iTunes ID, in Mac parlance) acts as the lead to govern the process.

Once on, shared libraries are viewable from every device in the circle. In the case of the White Collar pilot example from above, Apple TV pulled from the file stored on my Mac. This is what techies call peer-to-peer networking. Devices interconnect, sharing data and applications as needed.

Now imagine how this same process would have worked had Apple TV been connected to my account via iCloud. My Mac wouldn't have played a role. Instead, I'd have navigated to a tab featuring content I'd purchased, found White Collar, and clicked the iCloud icon to download the episode straight to our Apple TV box.

Your couch in the clouds
So while iCloud isn't Click TV -- we're still years away from that -- what Apple is proposing has a long tail of potential possibilities that could prove as transformative for Hollywood as it is for Motown. Users get content, studios get revenue and marketing data, and Apple gets more of us looking to its devices. Call it a ripple in an ocean of disruption, one fueled by the rise of cloud computing.

Of course, Apple isn't the only one poised to profit from a shift to the cloud. Take a minute to watch this free video right now and you'll walk away with a stock idea from our Motley Fool Rule Breakers scorecard and a richer understanding of how cloud computing is changing everything.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He's waiting for CBS to make seasons of The Big Bang Theory available on iTunes and iCloud. Tim owned shares of Apple and Google at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Google and Apple. Motley Fool newsletter services have recommended buying shares of Netflix, Amazon.com, Google, and Apple. Motley Fool newsletter services have recommended buying puts in Netflix. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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