Amazon.com Begins Testing Digital-Music Downloads
September 25, 2007 – 12:48 pm
Amazon.com Inc., the world’s largest Internet retailer, began testing a digital-music download service to compete with Apple Inc.’s iTunes.The service, called Amazon MP3, sells 2 million songs from more than 180,000 artists, Amazon.com said today in a statement. The songs, most priced from 89 cents to 99 cents, don’t have software that restricts how customers can play the music.
The addition of a music-download service pits Amazon.com against iTunes, the world’s most popular online music store, and Wal-Mart Stores Inc., the biggest retailer in the world. Downloads of songs and movies through Amazon.com’s Unbox video service may lift revenue as compact-disc sales decline.
“They have to embrace the download market and they want to be a leader,” said Colin Sebastian, an analyst at Lazard Capital Markets LLC in New York. “They already have a strong customer base who buys music so they should have a leg up.” He rates Amazon.com shares “hold” and doesn’t own any.
Sales of DVDs, CDs, books and other media accounted for 64 percent of Amazon.com’s second-quarter revenue, down from 68 percent a year earlier. The Seattle-based company sells products in more than three dozen categories, including jewelry, gourmet food, toys, electronics and power tools.
Amazon.com, founded in 1995, fell 62 cents to $91.97 at 11:39 a.m. New York time in Nasdaq Stock Market composite trading. The stock has more than doubled this year.
Anti-Copying Software
Amazon.com said the service would include songs from more than 20,000 record labels. The tracks will be available in the MP3 format without anti-copying programs known as digital rights management, or DRM, software.
Customers can play the songs on almost any device, including Apple’s iPod and iPhone, Zunes, Research in Motion Ltd.’s BlackBerry and transfer them to CDs.
ITunes was the largest online music store in 2006, with 70 percent of the market, according to research firm NPD Group. Apple charges 99 cents for copy-protected songs. It also has versions of songs from EMI Group Plc which are sold without copy protection for $1.29.
More than 1 million of the 2 million songs, including the top 100 best-sellers, will cost 89 cents to download, Amazon.com said. The best-selling albums will cost $8.99 or less, unless marked otherwise.
“Amazon’s program is a clear head-to-head competition with Apple,” said Scott Tilghman, an analyst with Soleil Securities Corp. in New York. “Amazon becomes the only major competitor to iTunes on iPods.” He rates Amazon.com shares “buy” and doesn’t own any.
CD Shipments
U.S. music sales declined 6.2 percent in 2006, led by a 13 percent fall in CD shipments to retailers, the Recording Industry Association of America said in April. Sales of downloaded singles surged 60 percent.
Record companies are trying to reduce Apple’s dominance of the digital music marketplace. Universal Music Group, the world’s largest record company, said in July it refused to renew a long-term agreement for selling its music on iTunes, preferring to supply music to Apple “at will.”
Universal, a unit of Vivendi SA, said it wanted the flexibility to make deals with other retailers.
“Amazon represents the best chance that the music industry has at building a competitor to iTunes,” James McQuivey, a digital media analyst at Forrester Research in Boston, said in an interview.
Apple, based in Cupertino, California, has sold more than 3 billion songs since iTunes’s April 2003 debut. The service offers more than 5 million songs, 550 TV shows and 500 movies.
Apple climbed $1.09 to $149.37 in Nasdaq trading and had gained 75 percent this year before today.
IPod Benefit
Already one of the top five sellers of music on CDs, Amazon.com also will benefit from sales of digital-music devices such as Apple’s iPods, McQuivey said.
“Amazon has a lot of things about it that make it very likely to succeed,” he said. “They have a large base of customers and they’re very good at mining data on their customers.”
EMI, based in London, is the only major record company to offer its entire digital music catalog for sale without DRM. Universal announced last month a five-month test to sell much of its music catalog without DRM protection.
The other major record companies, New York-based Warner Music Group Corp. and New York-based Sony BMG Music Entertainment, have said they won’t sell music without DRM because of the concern that it will be illegally copied and distributed for free.
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