Starbucks to offer tunes — Zune? i-Tunes? - Blogging Stocks

After deep-sixing their CD burning experiment and pushing their own line of CD’s at the register, Starbucks Corp. (NASDAQ:SBUX) is preparing to dip further into the music scene by offering MP3 downloads. Last week Starbucks’ head Howard Schultz said that the company would probably roll out the new program within the next year and a half.

The market has responded with confusion and skepticism. The primary question for most is Apple Inc.’s (NASDAQ:AAPL) involvement. Already the market driver, some wonder what would tempt Apple to share the take with Starbucks. Schultz may have tipped his hand in this respect by referring to MP3s, a universal music format that iTunes does not provide.

Microsoft (NASDAQ:MSFT), on the other hand, might have great interest in such a partnership to push their new Zune player, their attempt to horn in on the Apple personal music and portable video empire. After they failed to break the iPod’s lock on sales during the past Christmas season, MS might be looking for some strong cross-marketing opportunities.

However, Microsoft has baggage as well. They don’t sell MP3 format music either. Also, the children of Zune, like the iPod people, are encumbered by strong Digital Rights Management limitations and convoluted pricing, which might put off customers.
If Starbucks goes to a third vendor, however, such as e-Music, one has to wonder if they would receive quid pro quo on cross-marketing. The money to be made selling songs isn’t going to excite investors, and unless the company finds a way to enter into the hardware business (or, as you could say, go insane), the main benefit of such a program could bring is increased customer loyalty and commensurate sales. I expect them to use the MP3s primarily as incentives for upsells, rewards, and new customer recruitment.

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