It’s been a couple of days since Amazon’s foray into the MP3 world finally opened, and so far the response has been positive despite the lack of two major labels. (It probably helps that one of the majors on board is Universal, which puts out more music than pretty much anyone else.) But over at TheStreet.com, one writer sees Amazon’s entry into the market as a sign that prices for MP3s–and not files with copy protection–will take a nosedive, thus bringing music down to a price point where people might actually want to pay for it again:
Amazon’s new store may cause that retaining wall to crumble, prompting many Apple customers to buy songs that offer them better options.
But what about iTunes Plus, the service Apple launched earlier this year that lets you buy DRM-free songs? Well, here’s where things will really start to get interesting:
ITunes Plus sells those DRM-free songs for $1.29 each. Amazon sells the same songs for either 89 cents or 99 cents. That’s a discount of between 23% and 31% from iTunes’ DRM-free songs. Many of Amazon’s best-selling songs — including those in the Top 100 albums — are retailing for the lower price.
There are two reasons this is interesting: First, it’s setting up a new tech-titan smackdown between Apple CEO Steve Jobs, the master strategist, and Amazon CEO Jeff Bezos, the Crazy Eddie of the Internet.
Bezos is doing here what he does best: Building market share and volume by slashing prices. Jobs won’t take that sitting down, and he is probably plotting some cunning strategy to hold on to its iTunes customers.
Second, it’s leading to a full-blown price war. In fact, the first shot has been fired by Amazon with its 31% discount of popular songs. Over time, more companies are going to be jumping into the DRM-free market, each one trying to build market share with bigger discounts.
In a few short years, Apple and iTunes could be locked into the kind of deep-discounting that Tower Records and CD Wherehouse were engaged in during the years before digital downloads swept both aside. That’s going to help rejuvenate volume sales of songs and albums — and bring their prices down to earth.
But over time, it’s also going to ratchet down the margins of music stores like Amazon and Apple. In announcing its new music store, Amazon didn’t say how the discounts would eat into its margins, but you can bet analysts will be grilling Bezos on this in next month’s earnings call.
In the abstract, this argument makes sense, especially given Amazon’s aggressive pricing in other arenas. But watching the labels’ attempts to squeeze every bit of money out of their catalog that they can makes me think that most of them, save the indies that have decided to stick around eMusic, will probably be slow to adapt to this brave new world of low margins. In the eyes of some majors, “variable pricing” seems to be code for “inflating the prices of ‘emphasis tracks’ to ringtone levels.”
And then there’s the question of whether or not some old-school companies will be able to give up the digital-rights management ghost at all; despite the floundering of services that offer protected Windows Media files, as Silicon Alley Insider noted this morning, the Rolling Stones’ earliest music, which is controlled by ABKCO Music, isn’t available at Amazon’s store, because the company isn’t keen on distributing its music without some sort of protection.
Either way, this brave new future may be the only way to save the recorded-music business–despite the fact that it’s contingent on the margins at labels being slashed dramatically, and the high-rolling executive living being curbed, or cut entirely. Which makes me think that it won’t happen until the business gets a new generation of people in charge, although it’ll probably only really work if said generation hasn’t been spoiled by their forefathers’ excesses and who understand that ships, belts, and budgets need to be tightened.
Let the MP3 Price Wars Begin [TheStreet.com]