Could a $3 iPhone App Change the Way Music is Delivered?

— -- Apple has approved an iPhone application from the Nineties alternative rock group The Presidents of the United States of America. The PUSA app sells for $2.99, and lets you stream the band's entire catalog of music, which includes hits like "Peaches" and "Lump," over a Wi-Fi or cellular connection. Fans who buy the app also get access to premium content like the band's original 10-song demo tape Froggystyle; a link to buy PUSA songs on the iTunes store; outtakes and live recordings that will be updated regularly; and links to the PUSA blog.

Dave Dederer, PUSA's lead singer, is the vice president of business development for Melodeo-creators of nuTsie, a program that lets you stream your iTunes music anywhere including Facebook, and helped create the iPhone app. In an interview with Wired , Dederer said the PUSA app is a trial run for a much bigger business model that would allow bands to preview albums directly with fans and then give them the opportunity to pre-purchase the album at the iTunes store.

Since the music is streamed, labels don't have to worry about the album ending up on a file-sharing site, and with a link to the iTunes Store the app might actually encourage people to buy the music.

The big stumbling block to this plan is the question of licensing rights. If the band or label doesn't own all the rights to the music then getting all interested parties to agree on a band-specific app could prove impossible.

For its part, Apple seems to be content to take their cut from sales of the app instead of sales from individual songs or albums. However, it seems to me that Apple might not be so happy to see the PUSA model extended to other artists. It's not exactly a risk is it for Apple to allow PUSA to distribute all their music in an iPhone app? The band is not listed on the iTunes top 100 songs or albums, and hasn't been on the Billboard charts for years. Any lost sales from PUSA music is not going to impact Apple's bottom line.

But what if artists like Kanye West or Katy Perry-both are currently top artists on iTunes-wanted to release their latest hits or entire catalog through an iPhone app? How supportive would Apple be of that? Would they be willing to trade potential iTunes revenue for a cut of those apps?

It seems to me the idea behind the PUSA app has the potential to damage the iTunes business model. What if labels started delivering apps and other streaming services directly to customers? Instead of album sales, labels or artists could charge a subscription fee to keep the app going similar to the Rhapsody service from Real.com. That may not be very practical right now, but we're quickly becoming a wireless world. Wi-Fi connections have started showing up in airplanes and commuter trains, and it's likely only a matter of time until we'll be able to get a wireless signal in underserved areas like the cornfields of Kansas or the New York City subway system. That's what music services like Rhapsody, LaLa and NuTsie are banking on. The cornerstone of the new model is essentially, "why buy music when you can just stream it from the clouds, no matter where you are?"

Despite arguments to the contrary, artists will always need labels to promote their music effectively--not to mention to help with production costs and distribution. The music retailer, however, is not so important--a lesson that Tower Records discovered. Currently, the iTunes model enjoys success by basically modifying the physical record shop for the digital world. In the end, iTunes is still selling copies of music just like Tower Records did.

However, a completely wireless world where rights owners stream their music directly to you would be a direct threat to the current iTunes set-up. Despite rumors to the contrary Apple has never seen fit to move away from its pay-per-download model, and doesn't show signs of rethinking things anytime soon. But if concepts like Dave Dederer's PUSA app become popular, they just might have to.