Amazon’s Shot at iTunes Heard Round the World

Amazon.com is taking its digital music store to the world — a necessary move if the online retailer hopes to compete with a digital giant like iTunes.

Amazon will roll out its music store internationally this year, offering music that is free of digital rights management copy-protection technology that is more a weight on music sales than a benefit to the industry.

Amazon MP3, which the online retailer launched last fall, now has a library of 3.3 million DRM-free MP3 songs from 270,000 artists for download.

Correcting a Flaw

The company will likely correct a major flaw in the business with this effort. “If you’re going to be relevant as a distributor of digital music, you can’t just be distributing in the U.S.,” Michael Goodman, director of digital entertainment for the Yankee Group, told the E-Commerce Times. “The music business is global by definition, so in order for them to truly be a relevant player, they have to compete in every market.”

The U.S. represents only about a third of the global music market, Goodman noted. “Apple competes internationally, so you’ve got to compete internationally with them. That’s how Amazon is going to grow its revenues. If you’re going to do that, your long-term approach needs to be competing in the international marketplace. DRM-free downloads are crucial to sales, because they’re compatible with the full spectrum of devices.”

A Giant Going Global

Amazon is the only retailer that offers customers DRM-free MP3s from all four major music labels, as well as more than 33,000 independent labels, it said.

“No surprise there,” Michael Gartenberg, an analyst with Jupiter Research, said of the move. “Clearly, Amazon wants to be a strong player here, and the fact that we’re talking about unprotected MP3s is crucial because they’ll play anywhere.”

However, there are other potential hurdles, he told the E-Commerce Times. “It’s very good news for them, and it will be interesting to see how pricing structures look and see if they’ll be any different from the rest of the U.S.”

However, the news likely won’t be earth-shaking for Apple, which already has a major foothold in the global music market, Gartenberg added.

“It doesn’t mean all that much,” he said. “For the most part, [it’s] because Apple’s core business is selling music and the iPod remains the most popular item on the market. At the end of the day, customers will be driven to the device with the path of least resistance, and that’s the iPod.”

Amazon is responding to consumer demand, said Bill Carr, the company’s vice president of digital music. “We had received thousands of e-mails from Amazon customers around the world asking us when we will make Amazon MP3 available outside of the U.S.”

Going After iTunes

Amazon is clearly making a run at iTunes, Phil Leigh, host of Inside Digital Media, told the E-Commerce Times. “If anybody can do it, they can.”

The move likely has the enthusiastic backing from the music industry, Leigh noted. “The record labels are trying to give them an edge, too, because the labels have become resentful of the fact that iTunes has dominated digital music sales, and they’re not comfortable with that.

“They’re much more comfortable telling other people to do than they the other way around. The labels have been in the power seat and they don’t like iTunes taking one of the power seats away from them. They want to see competition in the marketplace, which is good for everybody.”

As for iTunes, Leigh noted that it could accommodate additional competition. “I think iTunes has so much momentum going for them, I’d think they’ll continue to grow.”

Amazon shares traded at US$76.13 midday on the NASDAQ stock exchange. The stock had a yearly range of $36.30 to $101.09.

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