Along with its library of 2 million songs, Amazon.com is bringing something else to the online music marketplace: competition.
When it opened Sept. 25, Amazon's MP3 digital download store undercut iTunes' prices on many albums. Its tracks, most of which sell for 89 to 99 cents, have higher sound quality than standard iTunes tracks and come without copy restrictions — known as digital rights management — that make it difficult to move tracks to a variety of portable devices, including iPods and Windows Media players.
Apple responded last week by reducing iTunes Plus tracks from $1.29 to 99 cents. Those tracks, like Amazon's, are DRM-free and higher quality than standard iTunes files (in tech terms, 256 kilobits per second vs. 128 kbps).
"We are seeing good old-fashioned, healthy competition instead of (pricing) that was honestly arbitrary," says David Card of market tracking firm JupiterResearch. "Now we have multiple suppliers, and they will end up competing on pricing, packaging and services. It's great for consumers, and I think it's even good for the industry."
That could mean even lower prices and creative packaging deals of music downloads with CDs and devices. And the spread of unrestricted tracks simplifies music download technology for users.
"This is all about convenience, and price is part of that," says James McQuivey of Forrester Research. "Amazon knows how to sell music. (It) is the one competitor that will rise above the rest."
Amazon's music library rivals iTunes for depth, although Sony BMG (Alicia Keys, Bruce Springsteen) and Warner (Linkin Park, R.E.M.) are not aboard. And music bought from Amazon can be automatically added to an existing music library, whether in iTunes or Windows Media. Transferring music to other computers or portables is more cumbersome in competitors such as Rhapsody and Napster.
"We worked to make it easy to get music right into iTunes because convenience is an important part of the experience," says Pete Baltaxe, Amazon's director of digital music. "We don't ask them to choose a particular music management system or piece of hardware."
Record labels have been lobbying for more competition — but they've also been hoping for higher prices for music downloads. Because it's the dominant retailer, iTunes' across-the-board 99 cents per track "became the de facto price," McQuivey says.
The music industry, he says, "recognizes they have lost the higher-prices war. I imagine (labels) are talking to Amazon saying, 'I will consider getting in your arrangement if you consider flexible pricing options' " such as $4 mini-albums with a single and other songs.
Lower prices could also result from a total rethinking of online music sales through subscriptions or by legalizing file-sharing services and charging pennies a share, says Paul Resnikoff of DigitalMusicNews.com.
"Another train of thought is that the recording is not a controllable asset, so it becomes a 'gimmie' to other revenue generators such as merchandise, concerts and TV appearances," he says.
Madonna's recently reported $120 million, 10-year deal with concert promoter Live Nation could be a harbinger of that approach, he says. "People are listening to more music than ever. It's just that (few are) paying for it."