Amazon Muscles Into iTunes' Turf With Liberated Music

The company announced today it plans to launch a digital music store where people can buy and download songs. The files will be in the MP3 format, and they will not contain digital rights management (DRM) coding that limits the number of times users can copy downloaded music and which devices can play the songs.

Details about the new venture -- including proposed pricing -- were scarce, but Amazon did say it will offer songs from "more than 12,000 record labels" and that it struck a deal with EMI to sell songs from that label's catalog.

Getting Crowded

By entering the world of downloadable music sales, Amazon will take on Apple (Nasdaq: AAPL) and its popular iTunes Store as well as Yahoo (Nasdaq: YHOO) , Wal-Mart (NYSE: WMT) , Sony Connect, AOL/Napster, RealNetworks' Rhapsody and others selling music downloads. The difference is Amazon's decision to sell only songs that contain no DRM protection.

"Amazon's DRM-free MP3s will free customers to play their music on virtually any of their personal devices -- including PCs, Macs, iPods, Zunes, Zens -- and to burn songs to CDs for personal use," the company said in announcing the new store. It stressed that "every song" will be DRM-free, not just the EMI files, which are already for sale without DRM on iTunes.

Limited Catalog

However, Amazon didn't specify which other labels' songs its new store will carry. Most of the major labels, including Warner Music Group, Sony and Universal, are sticking to their guns about DRM and refusing to sell songs stripped of the protection. A few weeks ago, music company executives told those attending an industry event they are not very interested in following EMI's move.

The labels' positions, however, could soften as music sales continue to slump and illegal downloading continues. There has talk of the big labels getting together to form their own DRM-free music downloading site, noted industry analyst Alan Chapell of Alan Chapell Associates.

"That would be a heck of a competitive advantage right there," Chapell told MacNewsWorld. "But even if the record companies were to do that, they would horribly mess it up."

The Amazon Touch

With the Internet already crowded with a myriad of music download sources that themselves are often confusing in terms of file formats, DRM and payment scenarios, what can Amazon bring to the table that will make it stand out? Experience, for starters.

"Amazon.com is known around the world for the unique experience it offers music customers through features such as customer reviews and personalized recommendations," said EMI CEO Eric Nicoli.

Amazon has such a deep well of customer resource management expertise, it will be a formidable competitor to the iTunes Store and the others, added Chapell. "Amazon is going to get into this space big," said Chapell. "If there is anybody out there who knows how to use consumer data to deliver a valuable shopping experience, it's Amazon."

Competitive Arm-Twisting

While the deal with EMI and the smaller independent labels will surely not be sufficient to make the Amazon store a comprehensive source for DRM-free tunes, the sheer size of Amazon might force the big record companies to reconsider their DRM position.

"This is step one for Amazon," said Chapell. "They are going to go into this in a much larger way. I also think it's somewhat symbolic that EMI is their first partnership and, presumably, they are going to be offering a DRM-free alternative.

The music labels, after all, want to sell lots of songs and "although their No. 1 preference would be to entirely own the distribution process, I'm sure that, in any event, they want to see anybody else but Apple own this," reasoned Chapell. He said the competition should be good for consumers.

"As the purchase of digital music continues to grow as an industry, you don't want to have just one company out there."

Newer and Better?

While MP3 files will play on most devices, most MP3s do not produce the same sound quality as songs found on factory-made CDs. EMI said the DRM-free songs it is selling through the iTunes Store and plans to offer through Amazon.com, are "new, premium" versions -- MP3s that produce higher-quality sound and take up more hard drive space. Amazon did not discuss pricing for its new store, but Apple charges US$1.29 for the better-sounding songs, 30 cents more than it charges for regular-quality files.

"Most people are just kind of comfortable with the MP3 as a format," said Chapell. "I think you'll see the quality improve over the next year or two, but fewer people are into the quality issue than the interoperability."