In its second-largest acquisition, Amazon buys the company for $970 million.
Amazon.com has announced plans to sell music downloads without the copy-protection technology that prevents consumers from playing their music on any device. Amazon will offer music from music label EMI, which has a similar deal with Apple’s iTunes.
Amazon.com is late in offering downloadable music for sale, and music label EMI is struggling financially. The two have joined forces around a strategy of selling music without the copyright protection that annoys many consumers by preventing them from playing their music on any device they choose.
Amazon says all the music it sells through the music-downloading service it will introduce later this year will be in the MP3 format and will not have the anti-copying digital rights management, or DRM, technology. “Our MP3-only strategy means all the music that customers buy on Amazon is always DRM-free and plays on any device,” says Jeff Bezos, Amazon’s founder and CEO.
DRM-free also means a consumer can share downloaded music with anyone they choose, but Amazon points out that unlimited sharing is a violation of copyright law.
Still, the initiative gives Amazon and EMI a way to stand out from the crowd.
“This is two companies who are coming from behind hoping to use the lack of DRM as a way to move forward,” says analyst James McQuivey of Forrester Research. He predicts Amazon will spend the next few months trying to persuade other major music labels to adopt the DRM-free approach and sell their music on Amazon. Of those labels, Warner Music Group and Sony BMG Music Entertainment, have stood firm on using the anti-copying technology, while Universal Music Group reportedly is testing copyright-free downloads in Europe.
Amazon, No. 1 in the Internet Retailer Top 500 Guide and the top online seller of music CDs, says it will sell millions of tracks from 12,000 music labels, but EMI is the only major label it mentioned in its announcement. EMI has been alone among the major labels in advocating DRM-free music, and last month announced a deal with Apple’s iTunes to sell EMI music without DRM technology at $1.29 a track. Amazon did not say how much it would charge nor when the service would launch.
The argument for removing DRM is that “if they can remove the barriers to enjoying the music consumers will buy more,” McQuivey says. He notes there have been signs this will work, including German telecom operator Deutsche Telekom selling 40% more music downloads after removing the anti-copying system.
Amazon faces a crowded field of online retailers offering music downloads for sale. iTunes maintains a 70% market share, according to research firm NPD Group, and Napster, Wal-Mart, Yahoo, RealNetworks’ Rhapsody and others are in the business as well. However, Colin Sebastian, analyst for brokerage firm Lazard Capital Markets, commented on the announcement that “Amazon’s strong brand and leading e-commerce platform would position the company well in the download market.”
All the competitors are hoping to persuade more consumers to pay for the music they download to their portable music players and PCs, rather than copying it free from peer-to-peer sites that ignore copyrights. The number of U.S. households paying for music downloads tripled to nearly 13 million last year, and they bought 500 million music files, up 56% from the year before, according to NPD Group. Still, consumers in 15 million households downloaded 10 times as many files free from peer-to-peer sites, and those 5 billion downloads in 2006 represented a 47% increase from the year before, NPD Group says.