Amazon licensing music

["Jim O'Donnell" <provost@georgetown.edu>]

February 17, 2006
Amazon Will Take On iPod With Its Own Music Player
By SAUL HANSELL

Amazon.com is preparing to take on Apple Computer in digital=20
music by introducing its own portable music player that would be=20
linked to an online music service, according to several music=20
industry executives involved with negotiations with Amazon.

Unlike Apple, which sells songs for 99 cents each, Amazon will=20
offer a service that charges a monthly or annual fee to=20
customers, who will have the right to fill up their music players=20
with as many songs as they like, the executives said. When they=20
stop paying the fee, the music on the player will be disabled.

Amazon has not told the music industry what the fee would be, but=20
similar subscription services range from $5 to $15 a month.

Apple, which sold 14 million iPods last year, has expanded its=20
lead in digital music. Apple increased its market share last year=20
in the United States to 67 percent of digital music players from=20
under 49 percent in 2004, according to the sales and marketing=20
research firm NPD Group.

Music industry executives are enthusiastic about Amazon's entry=20
because it might be a counterweight to Apple, which many see as=20
having too much power in digital music.

"We are excited to participate in Amazon's launch," said Greg=20
Scholl, the chief executive of the Orchard, the largest digital=20
distributor of independent music. The Orchard, he said, has not=20
reached a final agreement to provide music to Amazon's service.=20
"Given the quality of Amazon and its team, I'm sure it will be an=20
innovative and successful music product," he said.

Mr. Scholl declined to discuss any details of his negotiations=20
with Amazon.

In a conference call with investors last month, Thomas J.=20
Szkutak, Amazon's chief financial officer, highlighted digital=20
media as a major area of growth. "As we move forward with=20
digital, we think Amazon is especially well-positioned to capture=20
a bigger part of that business," Mr. Szkutak said.

Patty Smith, an Amazon spokeswoman, declined to elaborate on the=20
company's plans.

Amazon's intention to tie a subscription service to its own music=20
player was reported yesterday by The Wall Street Journal.

Music subscription services have been offered by Napster, AOL,=20
Real Networks and Yahoo for several years, and have attracted=20
about two million customers, industry executives said.

One reason that the subscription services have not fared well is=20
that the experience of using them with portable players is more=20
difficult than using an iPod. The Microsoft software that all=20
these services use has been awkward, and the players =97 made by=20
several manufacturers like Samsung, iRiver and Creative Labs =97=20
have not been as appealing to consumers as those made by Apple.

Amazon hopes to remedy these problems by designing its own player=20
in conjunction with a consumer electronics maker, and ensuring=20
that the software works easily with it. The player would be=20
discounted for customers who agreed to buy the music service for=20
a specified period, the music executives said.

Amazon plans to load the player with songs of a customer's=20
choosing before shipping it, the music executives said. And=20
because Amazon maintains records of the CD purchases of its=20
customers, it can also use that information to recommend music to=20
be downloaded onto the players.

The company, in fact, is looking to leverage its role as a major=20
vendor of CD's as it moves into digital music. It has discussed=20
with music labels the possibility of offering discounts to=20
subscribers of its music service on CD purchases.

It has also talked about giving CD purchasers digital versions of=20
the songs, saving them the time and trouble of creating their own=20
digital files to move onto the portable players. Record company=20
executives say that the financial arrangements that underlie=20
these potential discounts have not been finalized. They add that=20
Amazon has said it hopes to introduce the service by summer.

Ross Rubin, the director of industry relations with NPD, said=20
that Amazon's plan to create its own brand of player faced=20
challenges. A similar effort to create a Napster-branded player=20
made by Samsung faltered, he said.

"The branded music player approach hasn't worked because of=20
Apple's considerable iPod marketing and brand power," he said.=20
But he did say that Amazon's customer relationships may give it=20
an edge.

"It's a unique advantage for them," he said.

Copyright 2006 The New York Times
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