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Amazon plans digital music service, branded player

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By LC Angell

Contributing Editor
Published: Wednesday, February 15, 2006
News Categories: Digital Media

Amazon.com is planning to launch a digital music service and Amazon-branded MP3 players, according to a report by the Wall Street Journal. The online retailer is currently finalizing deals with the major music companies and could launch the service and portable devices as soon as this summer.

“Amazon 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,” reports the Journal. “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.”

The article claims that 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.”

“Amazon’s online music plans would take advantage of the company’s strong position in selling CDs and portable music players,” the Journal notes. “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.”

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Comments

1

I don’t see this as a smart move by Amazon. 7 out of the top 25 selling consumer electronics products on amazon are ipods and tons of ipod related merch is sold on the site. Plus if it is an amazon exclusive product there will be a much smaller digital marketplace for the players because ebay will be out of the picture. I don’t know. I think amazon will pretty much get owned by apple if they put out a digital music player.

Posted by The Witness on February 16, 2006 at 12:06 AM (PDT)

2

I agree, The Witness, I think this is just a dumb move.  Who on earth is going to buy this thing?

No…if you want to compete with Apple, build a better system than iPod/iTunes.  That’s the only way to win the war, period.  Build a better player and a better management system and a better store and make them all work seamlessly.  If you can’t do that, just give up already.

Posted by stark23x on February 16, 2006 at 1:08 AM (PDT)

3

Because, you know, the big risk here is that they’re late to market.

Not, say, the fact that nobody’s been able to replicate Apple’s style and ease of use. That couldn’t be their biggest challange at all.

Amazon may know how to sell things, manage inventory, and get it shipped to customers. Maybe some of this could transfer to being a good music store.

Nothing, however, indicates that they can handle the design of jukebox hardware or software.

Posted by Ward on February 16, 2006 at 1:14 AM (PDT)

4

Nothing, however, indicates that they can handle the design of jukebox hardware or software.

Who says they need to? THAT’S what outsourcing and subcontracting is for. Now, CHOOSING that right partner(s)...that’s another matter; the best one, Apple, ain’t interested. The pickings are rather slim beyond that.

It’ll be interesting to see how hard Amazon pushes their service on their website. Being the top online retailer, they should be smart enough give plenty of visability and strong marketing (unlike Google and their amateur handling of their video service), but whether it gets hits and generate sales is another matter. But being the shopping magnet that they are, they at least have site traffic in their favor.

But I wonder if all this will do is ultimately steal away from their own audio CD sales, rather than entice people away from Rhapsody or one of the other WMA-based services. Because it’ll be WMA-based (I assume), it’s NOT going to impact Apple much at all, at least not in the beginning and only in the future IF anyone buys into choosing an Amazon DAP and their service over an iPod, iTunes and iTMS.

Posted by flatline response on February 16, 2006 at 2:23 AM (PDT)

5

Not wanting to be an apple fan-boy, but the trouble is that ipod is now a cultural icon. Making a better ipod than ipod is hard enough. Competing with a cultural icon is super tough.

Posted by Countach on February 16, 2006 at 5:38 AM (PDT)

6

Preloaded with *what*? Personally, I don’t think I’ll be buying something that comes full of Kanye West and Madonna… but maybe that’s just me.

Posted by Moe on February 16, 2006 at 7:23 AM (PDT)

7

Yet another pathetic attempt…

Posted by mflat5 in USA on February 16, 2006 at 7:47 AM (PDT)

8

I’m with Flatline Response. Apple’s strength is a.) the HW is well done and (most importantly) b.) they control the experience (iTunes). Everyone else has a patched together solution made of verious bits from different companies who all think the experience should follow their thinking. There is no shared vision, too much focus on bells and whistles and they all miss the point. The point being in its most simplistic form is all about getting the stuff off of the round thingeys onto the square thingey.

Posted by rgreen on February 16, 2006 at 8:29 AM (PDT)

9

Finally, it seems someone recognized that it is not just the iPod.  It is iTunes, iTMS, AND the iPod.  Amazon gets it: find a company willing to participate in software development for the DAP that meshes with software for purchasing music and videos.  If we see an announcement in 2 months that Amazon and Sansdisk entered into a contract, start burning your iTMS purchased music and ripping them to remove DRM while you still can!  I think without Sansdisk, they’ll be hosed, just like the rest.

I just can’t buy the ‘cool factor’ thing about iPods to keep them on top.  Being ‘Fashion’able is the very thing that makes them vulnerable.

Posted by rochester on February 16, 2006 at 9:10 AM (PDT)

10

You miss the point on this story.  This isn’t a move by Amazon just to compete Vs. Apple.  Rather, its a move to preserve its position as a content marketer.  Amazon simply sees the reality that music and movies and eventually books will move more and more to digital distribution instead of “hard goods.”

The smart thing is that they realize, based upon the experiance of others, that a music player or digital store stand alone solution is not the answer.  It must be a packaged experiance:  reliable, easy-to-use, great content digital store-front, one-stop access to the digital content on your hard drive, and a great-looking player with great features.

As Apple continues to position itself more-and-more above the marketplace, it will become that musch more vulnerable to the marketplace.  That is the reality and has always been the reality.

Posted by Jeff on February 16, 2006 at 10:30 AM (PDT)

11

Jeff couldn’t be more correct about amazon trying to protect it’s self. In a few years digital media will be completely on top. CDs and DVDs will be just like cassette tapes and vhs. Pretty much non existant. So what’s a company like amazon to do? Start it’s own digital music store. Secure a place for itself in this “new age” They are going about it pretty smart. Atleast they are going to make a player that works with their service. Hopefully as seamlessly as the itune/ipod combo. Amazon has a bigger chance than another company. They are a well known name and I believe they will be smart enough to advertise their product.

No company can stay on top forever. Someone will bring Apple down. Whoever it is has to be smart about it.

Posted by Glorybox3737 on February 16, 2006 at 11:46 AM (PDT)

12

I wonder if Amazon has talked with Apple about teaming up.  Let’s face it, most of those 10% of all MP3 players are iPods.  Amazon has some negotiating power, here.

I’d love to be able to purchase a CD from Amazon and then download the tracks for my iPod immediately.  I’d probably pay a couple of extra bucks, too.  Apple could provide the DRM to do it and make it work with iTunes.

The first person to do this is going to make a killing.  I’m actually surprised Apple isn’t doing it already.

Posted by Walking Dude on February 16, 2006 at 11:48 AM (PDT)

13

A few key points in Amazon’s favor:

1.) The talk is they will subsidize the cost of the player.  The swap here is that Apple has staed that its content sales are simply a loss leader to sell more iPODS/increase utilization of iTUNES/ITMS.  Amazon would be doing the opposite:  using a device as a loss leader to maintain/increase content sales.

2.) They have that ability to sell you a hard copy of a CD and then give you a download that matches.  Powerful edge, espically as copy-protected CDs grow in number.

3.) The talk is they would offer subscription.  I still view this as the long term model.  The current offers are struggling mainly due to the love affair with the iPOD, not a desire to hear snippets of songs for free and buy at .99 a pop.  The average music consumer will move to subscription once a player offers a price-functionality nexus.

Posted by Jeff on February 16, 2006 at 12:07 PM (PDT)

14

@Jeff

Well, the problem is it’s “all talk” right now.  So, nothing’s quite yet in Amazon’s favor.

CD’s are a dying breed anyway, so why would I need a disc to match my download?

Posted by The Raven on February 16, 2006 at 12:33 PM (PDT)

15

The Raven,
Why do you want a hard copy?  My assumption is eventually, MOST media consumers won’t.  There will always be a segment that will want the source item that matches the digital copy.  This group will want the superior sound quality, the collection factor, and maybe to maintain their investment. 

Of course, the closer you get to a mass consumer position that the source item (CD, DVD, book, newspaper, magazine, etc) is unwanted, the closer you get to a subscription distribution model.  At that point, music will be consumed at will and as desired, a mode that is contrary to Apple’s current position (as well as Amazon’s current buisiness model) that we will consume music, etc. on a track purchuse by track purchuse pattern.

Posted by Jeff on February 16, 2006 at 1:55 PM (PDT)

16

This group will want the superior sound quality…

Is there anything else other than SQ that really matters? smile

Oh…I forgot…fashion…yeah, whatever…

Posted by flatline response on February 16, 2006 at 2:28 PM (PDT)

17

I know there is a tendency for a few to mock consumer decison making based on fashion instead of quality.  The reality is, the sweet spot for consumer excitement is when fashion is married to comparable quality.  The iPOD has done that.  Yes the iPOD doesn’t excite consumers in that sound quality above all else niche.  My guess is that Apple isn’t going after that group.

Besides, at this point hasn’t the argument that the iPOD is simply a purchuse based on fashion (i.e. it’s cool factor).  We’ve been through 7 plus versions over how many years?  If fashion and cool was the only foundation of the iPOD’s popularity, it would have long ago faded.

Posted by Jeff on February 16, 2006 at 3:17 PM (PDT)

18

The other comments are right.  Hard goods that Amazon sells are going away and so it is sink or swim.

The other thing that is causing this is record company greed.  They want variable pricing and so far Apple has told them to stuff it.

Posted by Scott on February 16, 2006 at 5:58 PM (PDT)

19

Why is variable pricing an indicator of record company greed?  If the model proposed is keep less popular tracks at .99 and increase the pricing on more popular downloads, than yes, that is gred based.

If the model is charge more (> .99) for most popular and charge less (< .99) for others, that I would want to look at that more.

Posted by Jeffrey Mason on February 17, 2006 at 11:32 AM (PDT)

20

If the model is charge more (> .99) for most popular and charge less (< .99) for others, that I would want to look at that more.

If I recall comments from industry reps last summer correctly, that’s exactly the type of model that at least one record company was advocating. Singles from new releases would be more expensive ($1.29 to $1.39—I can’t remember exactly); over time as the popularity wears off the single price gradually comes down ($0.69 or $0.59).  Moreover, the more expensive single price when new would also make the total album purchase price—at the time the exec was still stating the $9.99 price would stay the same—seem more of a “bargain”.

It’s typical entertainment-industry marketing; make as much as you can when it’s hot. It’s no different than what already exists for CDs, DVDs, video games, and even sometimes movie ticket pricing. Greed? Sure it is; they ARE a business, remember? Investors DEMAND of them to make profits; the more the better.

Posted by flatline response on February 18, 2006 at 11:55 PM (PDT)

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