Profitable Amazon flows into digital music

25-04-2007

by Ciara O'Brien

Online retailer Amazon looks set to take on Apple in the downloadable music market, with plans to launch its own iTunes rival.

Reports claim Amazon is being tempted into the digital music market by EMI's agreement to sell tracks free from digital rights management (DRM) restrictions. The retailer is believed to be interested in offering a completely DRM-free store for customers, selling music in the MP3 format.

Rumour has it that the retailer has been busy over the past couple of weeks, establishing contact with the major record labels in the hopes of striking a deal. A deal with Universal Music to trial classical MP3 downloads is already believed to have been signed.

Of course, there's nothing official just yet, but if Amazon's music store becomes a reality, it could pose a threat to Apple's dominance of the market. iTunes currently accounts for about 80 percent of the digital music market. Its recent deal with EMI to sell MP3 tracks instead of the digitally locked AAC files was considered a ground breaking move, with some analysts speculating that it meant the beginning of the end for restrictive copyright protection tools such as DRM.

Digital music is certainly a burgeoning market. According to a new report from Strategy Analytics, the global online music market will increase by 62 percent this year, reaching USD2.7 billion. This is expected to increase further to more than USD6.6 billion by 2011.

"The recent move by EMI and Apple to drop DRM from premium tracks will produce a temperate increase in single track download revenues in the short- to medium-term," said Martin Olausson, director of Strategy Analytics' digital media strategies service. "However, long term revenue growth will come from hybrid subscription based services."

Meanwhile, Amazon revealed its profit had more than doubled in the first quarter of 2007, smashing analysts' predictions. The online retailer posted profit of USD111 million, or USD0.26 per share, compared with USD51 million, or USD0.12 per share in the same period a year earlier.

Revenue rose by 32 percent to USD3.02 billion for the three month period. Analysts had expected USD2.93 billion in revenue for the quarter.

The results were given a helping hand by a reduction of USD12 million in Amazon's tax bill, while a weak US dollar also boosted results by the about USD5 million.

Strong sales were seen across Amazon's product range and geographic locations. In North America, sales jumped 30 percent to USD1.62 billion, while international sales increased 35 percent to USD1.39 billion.

Books, CDs and media products were Amazon's strongest seller, totalling USD1.99 billion for the quarter -- a 26 percent increase on the same period a year before. Sales of electronics and other goods surged 48 percent to USD947 million.