Amazon’s digital music effort seen boosting Apple iPods

“Analysts believe Apple has far more to gain than lose should Amazon succeed as a digital downloads retailer,” Scott Morrison reports for Dow Jones Newswires.

“Despite media reports that portray Amazon and Apple as rivals, analysts argue that the Internet retailer’s music service would target the two-thirds of Americans over 13 years of age who have so far shied away from digital media, and many new coverts would likely gravitate to Apple’s wildly popular – and profitable – iPod music player,” Morrison reports.

“Amazon’s entry into the digital music market could prove timely for Apple, which all but created the online music market in 2003. The Cupertino, Calif., computer maker now controls about 75% of the U.S. digital download market and some 69% of the digital music player market, according to The NPD Group,” Morrison reports.

“But iPod sales, which account for about one-third of Apple’s revenue, grew just 8% in fiscal 2007, down from 69% the previous year. With the so-called early-adopter market almost fully saturated, iPod sales will increasingly become tied to the expansion of the overall digital media market, and Amazon’s new service could be the vehicle to reach new consumers, said Barry Jaruzelski, a Booz Allen Hamilton strategy consultant,” Morrison reports.

“Amazon’s music service, launched in September, sells only MP3 digital tracks that aren’t wrapped in copyright protection software. That means they can be repeatedly copied and played on virtually all digital music players, including Apple’s iPod,” Morrison reports.

“Gene Munster, analyst at Piper Jaffray, said Apple iTunes could take a hit if Amazon MP3 gets off to a good start and builds momentum. But he noted that the modestly profitable iTunes store exists primarily to sell iPods, which generate gross margins of about 20%,” Morrison reports. “Munster and other analysts predicted that most of Amazon’s digital music converts would wind up buying iPods, simply because no other hardware or software maker has been able to develop a music player that matches the iPod’s sleek design and easy-to-use software. Amazon ‘may have an impact on iTunes sales, but there is little to no risk to iPod sales,’ said Booz Allen’s Jaruzelski.”

Full article here.

[Thanks to MacDailyNews Reader “Mike in Helsinki” for the heads up.]

16 Comments

  1. I’m telling you. Steve could screw EVERYBODY by sneaking a portal to the Amazon music store into iTunes.

    Imagine comparing iTMS & Amazon songs side by side based on price, quality, file size & file type. Consumers win. Apple wins, Amazon wins, everybody else: Sucks-2-B-U.

  2. Exactly right. There is no downside for Apple here. If Amazon’s service fails, the status quo is maintained. If Amazon succeeds and becomes a source for digital media that rivals iTunes Store, the market for digital media expands significantly, leading to increased sales of iPods. Amazon itself would help Apple sell those iPods.

    Apple and Amazon should be scheming together on this, if they are not already.

  3. +1 on everything that’s been said.

    It is interesting that iPod sales are down so much, but it makes sense. I bought a G2, a photo iPod (G3?) and a 60GB Video iPod (G?) about a year and a half ago, and they just haven’t come out with anything different enough to entice me to buy another one. I assume that there are many people who feel similarly. The iPod touch is tempting, but I’m more tempted by the 120GB. But, neither one is tempting enough to switch.

  4. Yep Steve/Apple is smart as hell. If its not available in iTunes then go to Amazon and buy it DRM free and load it on the iPod. Because people will continue to buy iPods, since Apple does “REAL” innovations with them.

    What idiot would load it on a Zune player. Oh yeah, MS innovates with new paint job and firmware updates for useless features. LOL

    If Amazon raises prices or puts back that Windows DRM, back to iTunes I go. If the labels won’t put it on iTunes, then it sucks to be a label, because no one will buy their stuff anymore. It will just bring back the days of downloading music from you know where. It’s a win situation for Apple.

  5. The Music industry could end up a winner too. If they’d get their heads out of their asses. iTunes has more tracks at a higher quality and Music Videos too. What the Music Industry needs to do is let Apple sell DRM Free Music Tracks and Music tracks using Apple Looses or higher bit rate encoded AAC files and let Apple put their full back catalogs in iTunes from one World Wide Store front at the same price with the only difference in the currency conversion (set the price in US Dollars or Euros and the other prices float based on current currency conversion rates. Let Amazon stick to the 1000 or so, most popular current releases that the labels whan to promoted and let Amazon sell the lower quality MP3’s at the lower price. While the labels spend their marketing money to promote the new releases at Amazon. The Music Industry Wins, Amazon Wins, Apple Wins and the more important thing is the Customers Win.
    As a Music Buyer I’m sticking to buying and ripping my CDs because I get better quality tracks and better quality Album Art as I scan the CD Books myself.
    The Recording Industry is nuts for not just letting Apple make everything in their catalogs available from one World Wide store. They want everyone to replace their old CDs with digital downloaded tracks but, they have made it impossible for us that have CD’s from the 80’s through to about 2005 and from all over the world and even some that were released in 2006 and 2007, even I knew when I started the fully digital process I could have just bought all the tracks in as high a quality has I could rip them in without DRM, I would have just spent the cash and bought them all already in digital format. After all, you how long it takes to rip 10,000+ CD’s and scan all the art work? I’ll tell you, it took me 2 to 3 hours a days for more then 5 months, and I’m still finding CD’s around my house that I need to rip. I found a box in the back of my office closet yesterday that had old software CDs in it but, most of the box was Music CDs, old rare U.K., German … Indie and Rough Trade CDs. I tired of ripping CDs, though I have found a lot of great old music I have not listen too in years.

  6. iTunes is not a profit center for Apple. Let Amazon take over and negotiate with the dumbasses at the music labels. The iPod is a superior music player. I’ll buy songs at Amazon and put them on my iPod. Easy. And Apple doesn’t care.

  7. It’s a well known fact that Apple doesn’t make much money from iTMS. It will be fascinating to see if Amazon is able to run their music store without making a loss or by relying on some sort of subsidy. No company other than Apple has so far managed to stay in the black when selling digital downloads.

  8. There is something else analysts missing. Amazon’s effort relieves the pressure from the labels on Apple to share profit from iPod sales. It’s no secret that the labels want to get profit sharing plan a la Zune where Apple pays the labels for each hardware sales regardless whether the hardware is used for pirated music or not. The club the labels used against Apple was the music license. In the past, the threat worked on the principle that if labels had pulled out, the only DRMed music would have been PlayForSure/Zune DRM variety and since iPod supports neither, Apple would’ve been disadvantaged. With Amazon selling MP3s, even if iTunes Store stops selling music, iPod still has a source of legal music download.

    The more the labels push to sell unDRMed music to marginalize iTunes Store, the weaker position they have in pressuring Apple. Deliciously ironic.

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