“In recent years, Amazon.com Inc. Chief Executive Jeff Bezos has explained his company’s deliberately paced approach to the digital-music business by saying he wants to avoid simply imitating the dominant player in the field, Apple Computer Inc.’s iTunes Music Store,” Ethan Smith and Mylene Mangaindan report for The Wall Street Journal. “Now Amazon, the world’s No. 1 online retailer, is in advanced talks with the four global music companies about a digital-music service with a range of features designed to set it apart. Among them: Amazon-branded portable music players, designed and built for the retailer, and a subscription service that would deeply discount and preload those devices with songs, not unlike mobile phones that are included with subscription plans as part of the deal.”
“Music executives privately welcome Amazon’s plans, which they see as one of the only credible challenges to Apple’s hegemony in both digital music and portable players. Now the question is whether Amazon’s massive customer base is enough to offset a long delay in entering the online music business,” Smith and Mangaindan report. “The service could be launched as soon as this summer, according to people familiar with the matter. Amazon declined to discuss the service, and hasn’t finalized deals to license content from major music companies… The move is crucial for the Seattle-based retailer’s long-term strategy. Despite offering a vast array of products from gourmet coffee to garden hoses, Amazon depended on physical media like CDs, DVDs and books for 70% of its 2005 sales. To maintain its dominant position, Amazon will need to hang on to consumers as they migrate to digital delivery of those products.”
“Amazon’s online music plans would take advantage of the company’s strong position in selling CDs and portable music players. The online retailer sells an estimated 10% of digital music players in the U.S., including iPods, and the pending deal could hurt its relationship with Apple. If Amazon’s competing offering presented enough of a threat, Apple could even stop selling iPods on the site, says Chris Crotty, senior analyst at iSuppli Corp., an El Segundo, Calif., market-research firm. Apple declined to comment,” Smith and Mangaindan report. “Amazon hopes to set itself apart [by offering] a subscription service, in which users pay a flat monthly fee for access to an unlimited amount of music [and] Amazon has discussed offering subscribers digital-music players that come preloaded with tunes suggested by the online retailer, based on factors such as the subscriber’s personal CD-buying history on the site. The preloaded music could be kept on the player as long as the customer pays the monthly fee, but could also be swapped out for other songs during the course of the subscription. Another likely feature: the portable players would be free or very cheap with a long-term subscription — say, a year — similar to the way cellphone providers subsidize the cost of new handsets when customers commit to service agreements. It’s possible Amazon would price the subscriptions close to what competitors typically charge — about $15 a month — and has said it may offer discounted CDs to subscribers.”
Full article with more here.
Even if Amazon launched today, it’s just way too late. Apple simply holds too strong a position. Various subscription services have uniformly failed to do anything negative to Apple’s iTunes Music Store (which also offers music videos, TV shows, podcasts, etc., by the way). Free music players from Amazon with subscriptions don’t sound as hot as it might have years ago with iPod prices now starting at $69. At best, this is a play by Amazon to compete for Apple’s leftovers and attempt to offset their CD sales losses to Apple’s iTunes Music Store.
No portable music players have “scratched” Apple iPod’s dominance to date; an Amazon-branded player from third-parties won’t succeed where Sony, Creative, Dell, iRiver, Virgin, Rio, and many others have failed miserably. And Apple’s certainly not sitting still with hot new iPod models debuting regularly.
Apple just has too many weapons with which to combat threats to iPod and to iTunes. Apple could cut iPod prices and win any price war. Apple could license FairPlay. Apple could flick the switch on subscriptions for music and/or video. Not that any of those options are even remotely within the realm of possibility right now: Apple’s iTunes Music Store dominates the market with 80% or so share. And iPod dominates the portable digital media player market; iPod models currently occupy the top 9 spots of Amazon’s MP3 Players best-sellers list, including the top 4 spots of Amazon’s Portable Digital Media Players best-sellers list, the top 6 spots of Amazon’s Flash Drive-Based MP3 Players list, and the top 4 spots of Amazon’s Hard Drive-Based MP3 Players list. If Apple pulled iPod from them, Amazon immediately would not be selling an estimated 10% of digital music players in the U.S.
This play by Amazon just doesn’t add up to a rival for iPod+iTunes. However, it may cause some serious angst in Napster’s, RealNetworks’ and other also-ran online music services’ headquarters.
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EMI Music Chairman: Music subscription services like Napster and Rhapsody haven’t beeen huge – January 23, 2006
BusinessWeek: Apple unlikely to launch music subscription service – August 15, 2005
Study shows Apple iTunes Music Store pay-per-download model preferred over subscription service – April 11, 2005
More blood on Apple iPod’s Click Wheel: Sony’s Walkman Bean is cooked – February 13, 2006
More blood on Apple iPod’s Click Wheel: Dell dumps ‘DJ’ hard-drive MP3 player line – February 04, 2006
More blood on Apple iPod’s Click Wheel: iRiver pulling out of Europe? – February 01, 2006
More blood on Apple iPod’s Click Wheel: Thomson gives up on MP3 player, CE markets – December 12, 2005
More blood on Apple iPod’s Click Wheel: BenQ withdraws from MP3 player markets – November 28, 2005
More blood on Apple iPod’s Click Wheel: Olympus halts production of portable digital music players – November 09, 2005
More blood on Apple iPod’s Click Wheel: Rio is dead – August 26, 2005
Sony to combat music market ‘maestro’ Apple Computer with ‘Walkman Beans’ – August 18, 2005
Apple’s iPod has blood on its Click Wheel: Virgin Electronics is dead – March 08, 2005