Option 3 is pretty much exactly what the most recent rumors suggested: "Armed with licenses from the music labels and publishers, Apple will be able to scan customers' digital music libraries in iTunes and quickly mirror their collections on its own servers, say three people briefed on the talks. If the sound quality of a particular song on a user's hard drive isn't good enough, Apple will be able to replace it with a higher-quality version. Users of the service will then be able to stream, whenever they want, their songs and albums directly to PCs, iPhones, iPads, and perhaps one day even cars." [1]
"We've scanned your iTunes library of 12,000 songs. The price to stream each song over iCloud will be $0.09/song. Click here to bill the $1,080 directly to your card."
If that's not the scenario, than what is? You can only stream songs newly purchased over iTunes and only iTunes?
I suspect Apple will charge a flat rate for iCloud and allocate the royalties proportionally (like Spotify). From the customer's point of view it will be "free" to sync their music into iCloud, but the labels will get paid (again).
> I suspect Apple will charge a flat rate for iCloud and allocate the royalties proportionally (like Spotify). From the customer's point of view it will be "free" to sync their music into iCloud, but the labels will get paid (again).
This is how I see it too. Customers with smaller collections (i.e. the majority) will have higher margins, and effectively subsidise those with larger (and therefore with larger royalty payouts) collections.
Works similarly to the way ISP's do: users who use say, 20GB of a 60GB cap are more profitable than a user who uses 145GB of a 150GB. Bandwidth costs are small, but on a large scale, it works.
But that kind of negates the whole attractive sales point of "your whole music collection INSTANTLY ONLINE!"
I think wmf might be onto it. It could be a subscription thing. But as someone highly rated noted above, this whole iCloud thing might just be the developer's platform at this point in time (it is WWDC, after all), and the music stuff comes later in the fall with the iPod cycle.
[1] http://www.macrumors.com/2011/05/26/some-icloud-music-servic...