Starbucks giving away free iTunes downloads

For 37 straight days beginning next week, Starbucks will give away free iTunes music downloads, including songs by Bob Dylan, Joni Mitchell and Paul McCartney, to kick off a new partnership between the coffee titan and Apple Inc.

Up to 1.5 million daily giveaways will begin Oct. 2 and run through Nov. 7 at more than 10,000 company-owned and licensed U.S. stores, Starbucks said. When the promotion ends, Starbucks expects to have given away more than 50 million songs.

"It's a great moment for us when you look at the overall relationship we have with iTunes," Ken Lombard, president of Starbucks Entertainment, said in an interview with the Seattle P-I. "We feel it's definitely groundbreaking."

Lombard said the artists and record labels are providing the music for the promotion, which is "not costing us anything." The deal is expected to drive traffic to Starbucks and Apple's iTunes store, where customers can buy additional tracks after sampling various artists. With single songs costing 99 cents apiece on the iTunes store, the giveaway is valued at roughly $50 million.

Lombard said the partnership would help Starbucks, which last year put its Hear Music catalog on iTunes, become more of a destination for coffee and music lovers. Starbucks has increased its promotion of music and other media, such as books and movies, as a way to differentiate itself from rivals McDonald's and Dunkin' Donuts, which have peeled away customers with lower-priced coffee drinks.

While still highly profitable, Starbucks has seen its stock price decline in the past 12 months as the company has not met Wall Street's expectations because of intense competition and rising dairy and employee costs. Starbucks, in its most recent quarterly earnings report, had a $158 million profit on $2.36 billion in revenue. But the company's stock price has fallen 19 percent in the past 12 months.

Two analysts who cover Starbucks called the iTunes giveaway "interesting," and both said that while the deal is unique, it likely will not significantly raise profits.

"They are just trying to draw some attention," said Dan Geiman of Seattle-based McAdams Wright Ragen. "It will never be big business for them. ... It will be incremental income for them, and it's generally a complimentary business."

Patricia Edwards, a Seattle-based analyst with Wentworth, Hauser and Violich, said the giveaways could drive an older demographic to iTunes.

Starbucks' "core customer is not the teeny-bopper who downloads a lot of music. Their core customer is someone between 30 and 40 who may not have ventured out into the digital world," Edwards said. "It's a good way to introduce that customer to an online experience."

Edwards, a self-described music download addict, said getting someone turned on to iTunes is "kind of like getting hooked on caffeine."

Starbucks declined to disclose its financial arrangement with Apple should the coffee company drive sales at iTunes, but Edwards believes Starbucks is receiving some kind of promotion fee.

Apple did not return calls seeking comment.

During the promotion, Starbucks will pick an artist each day and provide its customers with a complimentary download card that can be redeemed through the end of the year at the iTunes store. Some of the other artists are Joss Stone, Dave Matthews, Bebel Gilberto, Annie Lennox and Keith Urban.

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