In its second-largest acquisition, Amazon buys the company for $970 million.
Amazon and music label EMI have joined forces to sell digital music in a way that lets consumers freely share music without the digital rights management, or DRM, that restricts use of downloaded songs and annoys many consumers. The music downloading service Amazon plans to introduce later this year will offer all of its music through the MP3 format, free of DRM.
First in the volume of overall online sales, Amazon.com Inc. can’t be first in everything. But if it hears opportunity in something new like digital music downloads, it’s a fair bet it will find a way to make its presence known-even if it’s late to the dance.
All it may need is the right partner, and Amazon figures it has found one in music label EMI. Though EMI is struggling financially, Amazon and EMI have joined forces around a strategy of selling music in a way that lets consumers freely share music without the copyright protection, or digital rights management, that annoys many consumers.
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.
“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, a 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.”