As of this evening, Sandoval's rumor is looking a lot more like a done deal. The Wall Street Journal and the NY Times are both confirming that Apple has pulled the trigger and spent a minuscule fraction of those billions in cash on Lala. No numbers were announced, but the WSJ notes that an investment of $20 million in Lala from Warner Music Group was written down by more than 50% earlier this year.
Why Lala for Apple? The AP noted that Lala co-founder Bill Nguyen demoed an iPhone app in October that allowed 'intelligently cached' songs to be streamed to your iPhone, with the recently-streamed songs replayable even outside of cell coverage areas; Wired suggests that Lala's bundle-payment setup, where users buy stream credits, could save Apple's iTunes Store millions in credit card fulfillment charges. The deal is expected to put Nguyen and the Lala engineers on Apple's payroll, although the Times notes that Lala's agreements with the labels to stream music are non-transferable.
Lala's model for music streaming is an interesting one; the service scans your hard drive for songs you already own and lets you stream them at will, taking the concept Apple's also providing with Home Share to the Web (other services also let you share media between iTunes instances). You can also choose to stream songs you don't already own for $0.10 a piece, and 'upgrade' to a downloadable version at will.
Lala also recently made an agreement with Google to offer music previews in Google searches, greatly expanding Lala's reach. It's not clear whether Apple's purchase will have any affect on that arrangement
Is this a streaming service you would like to see come to iTunes? Leave a comment below and let us know!