Apple raises stakes in digital music

SAN FRANCISCO -- Apple Computer Inc. yesterday introduced a tiny, cheaper iPod, then enlisted the help of a rock star to show off new music-composition software that lets amateurs fill the portable music players with their own tunes.

Before a cheering crowd at its Macworld Expo show here, Apple said it would begin selling its iPod Mini, a music player the size of a business card and a half-inch thick, next month for $249. Capable of holding about 1,000 songs in its 4 gigabyte hard drive, the new player is designed as an entry-level iPod to compete with less expensive MP3 players. It will sell for $50 less than Apple's current lowest-priced iPod.

The new products highlighted Apple's strategy of selling digital songs and music players to users of Windows-based personal computers -- even as it offers tempting reasons to ditch their PCs and buy Macs.

GarageBand will be a persuasive argument for doing just that, analysts said. The software lets people record songs by dragging samples from a library of synthesized sounds -- from drums to bass to horns. Musicians can plug their electric guitars or keyboards, equipped with an adapter, into their Apple computers and jam, then zap the recorded song into their iTunes digital jukebox or to their iPod.

Starting Jan. 16, the software program will come free on new Apple computers and be sold as part of Apple's iLife software suite for $49. It will not work on personal computers running Microsoft Corp.'s Windows operating system.

"This is a groundbreaking application," said Michael Gartenberg, a vice president with Jupiter Research, a market research firm. "GarageBand is a reason for someone to buy a Macintosh."

Apple CEO Steve Jobs unveiled the software and iPod Mini with his typical flair, calling singer John Mayer on stage to plug his guitar into the Apple computer and wail.

"Now instead of lugging your old amp around you can just lug around your PowerBook," Jobs said, referring to Apple's notebook computers.

Apple, based in Cupertino, Calif., has set the pace in the entertainment industry's efforts to get people to buy music online. Jobs said Apple has sold 30 million songs through its iTunes download music store and shipped 730,000 iPods during the fourth quarter. At $300 to $500 apiece, depending on the storage space, that added at least $220 million to Apple's revenue last quarter. "It's become a fairly important revenue stream for the company," said Roger Kay, director of client computing for International Data Corp., a research firm in Framingham.

Although Apple has taken an early lead in the budding market for digital music distribution, the competition is increasing.

Yesterday Rio Audio, maker of another popular brand of portable music players, said this month it would begin selling a 4-gigabyte model called the Nitrus for the same $249 as the iPod Mini.

At the Consumer Electronics Show in Las Vegas, RealNetworks Inc., which sells subscriptions to music streamed over the Internet, plans today to launch an online store for 99-cent song downloads, tied to a new media player.

Real will also announce that between Memorial Day and July it plans to give away coupons for two free songs in 7 million 12-packs of Heineken beer, trying to match Apple's song-giveaway through PepsiCo Inc.

Also in Las Vegas, Roxio Inc. plans to announce that it has struck a deal with retailer Target Corp. to sell prepaid cards for its Napster 2.0 download service, blank CDs with coupons for free downloads, and Napster-branded CD cases starting next month.

But analysts expect Apple to stay ahead of its competitors. The company's likely next steps are a home-media server for recording TV shows and sharing digital files between the television and computer, then a portable video player like the iPod.

"Apple is slowly reinventing itself," Kay said.

Chris Gaither can be reached at gaither@globe.com.