SPOTIFY HAS APPLE ON THE RUN

Yes, for the first time since it muscled in and it took over music retail more than a decade ago, mighty iTunes is back on its heels. Song downloads have taken a withering 15% hit year over year, while iTunes Radio, which was expected to dominate the streaming sector soon after its launch last September, has been decisively TKO’d by Pandora, which remains firmly in control of online radio, and more generally by on-demand ruler Spotify, which is starting to throw off real money to artists and labels.

Reeling from iTunes Radio’s giant flop and feeling intense heat from Spotify, Kondrk and company are pushing harder than ever for content exclusives from the majors, a la Beyoncé, that will prop up iTunes’ download sales while it races to create its own desperately needed on-demand streaming service. But the iTunes crew has no experience in playing from behind, and that on-demand service still appears to be miles from launch.

All signs point to a coming paradigm shift from downloading to streaming, and unbelievable as it seems, Apple, so accustomed to dominating the music sector, actually finds itself watching from the sidelines as better-prepared rivals put their game faces on.

As much as label execs want to high-five each other, elated to see iTunes get a reality check, the fall of iTunes could be devastating for the music biz, which is deriving a whopping $2 billion a year from the store—unless that much-ballyhooed paradigm shift can swiftly and seamlessly make up for the revenue lost by the drying up of downloading. But that seems like a long shot. There could be some serious and extended pain ahead for all concerned.

Is there room for more than one power in the streaming sector, or is Spotify’s lead too big for any challenger to overcome? Will the Daniel Ek-led service become the new 800-pound gorilla, and how and when will those huge advances it paid to the labels to license their music get trickled down to the artists?

The ever-growing Spotify windfall, previously limited to those licensing advances, is no illusion, and it’s the DIY and indie acts who are finding that streaming revenue represents an increasing percentage of their income when they receive their monthly statements from Tunecore and other collection services.

iTunes still wields a big stick for labels that don’t play ball with its demand for exclusive content—the ability to withhold prime placement in the iTunes Store. That good spot on the homepage carousel has for some time been one of the best looks a record could get. That hasn’t changed—not yet.

Even more ominously, Apple’s struggles on the content-delivery side mirror its loss of influence in the device world it once ruled. Since the iPhone and iPad, the tech giant has rolled out nothing groundbreaking. Samsung, meanwhile, continues to breathe down Cupertino’s neck. The Korean firm is gaining more and more marketshare with younger consumers, and even struck at Apple’s branding with ads suggesting the iPhone was really more for mom and dad than for today’s kids.

Indeed, many tech observers have suggested that Apple’s era of innovation has come to a grinding halt. As Cupertino regards the future, it no doubt sees parallels to the fate of Sony Electronics—just substitute the iPod for the Walkman. Are we about to witness an "Ozymandias" moment? Look upon my works, ye mighty, and despair.

It’s a surreal turn of events: The revolutionary transition from music ownership to the streaming/subscription/cloud model may actually place labels in a stronger position—and one of the world’s tech leaders in a world of hurt. What a difference a decade makes.