The biggest news out of Steve Jobs' iPod extravaganza Wednesday wasn't the new iPod Touch or the $200 price cut for the iPhone. It's that Apple will soon start opening a far-reaching chain of digital entertainment stores in prime shopping locations.
Apple's deal to offer the iTunes Wi-Fi Music Store through Starbucks will give Jobs another network of shops in great locations.
Over the next couple of years, nearly 6,000 Starbucks coffee shops will be turned into digital entertainment centers selling music and movies on Apple's behalf -- the perfect complement to Apple's wildly successful chain of retail stores.
If the rollout proceeds as planned (details here), the deal could be a paradigm shift, a big nail in the coffin for the CD, and for brick-and-mortar music stores.
As Jobs noted Wednesday, the digital music revolution is gathering speed. A third of the music released in the United States in 2006 was purely digital; the music was never put out on CDs.
"This last statistic blew my mind when I read it," he said. "Wow. Look how far we've come."
Jobs also noted that Apple has moved up to become the No. 3 U.S. music retailer, trailing Wal-Mart and Target but bigger than Amazon.com.
With the Starbucks deal, Apple will have a chain of music stores in prime locations, but Apple will pay no rent; the shops will carry a vast inventory of products that take up no space.
Jobs gave a fairly muted assessment of the Starbucks deal, noting mostly that the negotiations had been two years in the making. He left the excited raving to Starbucks founder and chairman Howard Schultz, who took the stage.
"It's rare a physical retailer can transform the marketplace," said Schultz, who noted that Starbucks has 14,000 stores worldwide serving 50 million customers a week. "This is going to be a transformation."
"It's the beginning of something that could be big for both Starbucks' bottom line and Apple's media-distribution empire," said journalist Glenn Fleishman, who follows the industry at Wi-Fi Net News.
"For Apple, it solves several distribution problems: Downloading music without a computer, sure, but the big issue is that it gives them high-speed download outlets for people who own iPods and don't have broadband at home or everywhere. By providing more opportunities to buy music, people will simply buy more music."
Fleishman said the partnership opens up the interesting possibility that Starbucks could install giant media servers in its stores, turning coffee shops into digital video stores.
If Starbucks installed compact, terabyte-size media servers with fast, 802.11g wireless connections, a 1-GB movie could be delivered to an iPod in seven minutes, instead of the 90 minutes required using a typical broadband connection.
"I've been hearing companies talk about it for years," Fleishman said.