Amazon’s MP3 Store Has Major Labels (Mostly) Looking On The Bright Side

So BusinessWeek thinks Amazon’s new MP3 wing is doing pretty well for itself, a little more than three months after its launch, thanks to its client list of DRM-free big names, despite there being no firm sales figures available to the public as of yet and most everything in this article being off-the-record speculation and guestimates. (Even with Amazon itself being beyond tight-lipped about its financial arrangements with the major labels that are providing it with the ability to take a nibble at iTunes, the general idea behind its big draw remains that those labels will soon be able to vary the cost-per-download from the now-standard .99.) There is, however, one aspect of Amazon’s music retail department that’s giving the usual anonymous label insiders some pause about whether or not the online behemoth has their best interests at heart.

To see the awkward position music labels are in, look no further than Amazon’s own CD listings. Amazon’s customers are increasingly turning to used CDs. Third-party sales by merchants across all Amazon products, much of those for used goods, now account for 32% of all the site’s transactions. That’s up from 19% in 2003. Just one example: On the Amazon page for Mary J. Blige’s album Growing Pains, released Dec. 18, a new version sells for $7.99, but directly below it is a used version going for $6.45. That steams the record labels, which don’t make any money on sales of used CDs. The music industry can ill afford to have anything else pinch its faltering CD business. Album sales dropped another 15% last year, according to the most recent sales figures released by Nielsen SoundScan. That follows years of CD sales declines, which forced big retailers like Tower Records into bankruptcy and prompted other large chain stores to reduce the shelf space devoted to CDs. Record executives decline to comment publicly about Amazon’s new- and used-CD sales practices for fear of alienating their new partner for online sales. They say in private that Amazon should be extending a good-faith effort to the record labels by altering their policy to sell used and new together. “Nobody is happy about this but it’s a little touchy right now with the new download store,” says one executive. “You will begin to see a lot of pressure exerted on Amazon going forward,” says another executive.

Amazon, on the other hand, sez it’s totally lovey-dovey with the majors and that they shouldn’t be getting salty over any ports in a sales storm at this point, especially a retailer where “sales of new CDs increased after the used business began to take off a few years ago.” It does make you wonder what kind of “pressure” could even be exerted on Amazon at this point given the lack of other outlets Amazon’s size and Steve Jobs’ general intractability on pricing, which Amazon has knowingly played on to make it seem (not entirely incorrectly) like a haven for the beleagured big boys, a “grand experiment” (as BusinessWeek puts it) that at least provides labels an Apple alternative without doing the work of setting up their own online retail environments.

Slouching Towards Digital [BusinessWeek]