Amazon to sell unrestricted songs

By Joseph Menn and Alana Semuels

May 17, 2007 12 AM PT

Times Staff Writers

Amazon is finally taking on Apple.

The Seattle-based online retail powerhouse said Wednesday that it would open a digital music store with a consumer-friendly twist that, Amazon hopes, will give Apple’s iTunes a run for its money.

The difference: Customers could do anything they want with the songs they buy.

Pushing back against a key part of the recording industry’s anti-piracy efforts, Amazon.com Inc. said none of the millions of tracks it planned to sell would be encumbered by software that restricted copying. That means people could play the songs on iPods or any other music player and burn them onto CDs an unlimited number of times.

Plus, Amazon already has millions of online shoppers and sophisticated software that recommends products based on customer tastes.

“There’s much more potential for Amazon to be a competitor than anyone else,” Gartner Inc. analyst Mike McGuire said. “They did write the book on e-commerce.”

The store, which is expected to go live as early as this fall, features songs from music giant EMI Group and thousands of smaller record labels -- but none of the other majors so far. EMI, the world’s third-biggest record label, broke with its peers in April and said it would soon begin offering unshackled songs from Norah Jones, Coldplay and other top artists for sale through iTunes. It did the same Wednesday with Amazon.

Amazon’s vow to sell music not limited by so-called digital rights management, or DRM, software deals a big blow to the major record labels. They have tried to keep electronic versions of songs in a format that’s difficult to illegally share.

Music industry insiders said privately that Amazon’s clout might eventually force them to give up their effort to use technology to restrict what people do with the digital music they buy.

“The other labels will capitulate,” said Peter Fader, a marketing professor at the University of Pennsylvania’s Wharton School.

EMI’s three biggest rivals -- Universal Music Group, Sony BMG Music Entertainment and Warner Music Group -- offered no public response Wednesday to Amazon’s announcement.

Amazon said its store would feature music from 12,000 record labels, but it didn’t name any besides EMI. The company also declined to say how much it would charge for each song. Apple sells most tracks for 99 cents, and this month will start selling DRM-free songs for $1.29 apiece.

No date was set for the Amazon virtual store’s opening, beyond “later this year.” Music industry sources said they didn’t expect it before September.

Amazon’s prowess in selling CDs online helped it become the fourth-biggest U.S. retailer in 2006, trailing only Wal-Mart Stores Inc., Best Buy Co. and Target Corp. research firm NPD Group said. But Apple, which sells digital downloads, is in fifth place and closing in fast.

Amazon, led by Chief Executive Jeff Bezos, has been plotting an entry into the digital-music market for years. At times, it has pitched the labels on selling copy-restricted music. At other times, Amazon weighed selling its own brand of portable music player and selling music that would play only on it.

Plans for an Amazon-branded player have been abandoned, music executives said. The company sells iPods and rival players from companies such as Creative Technology Ltd. and SanDisk Corp..

Bill Carr, Amazon’s executive vice president of digital media, said Amazon preferred to offer easy-to-use MP3s instead of DRM-protected music. EMI’s participation, which gives Amazon a broad enough selection, sealed the decision.

“There’s an increasing realization among record companies that DRM-free is the way forward,” Carr said. “Part of our goal is to drive that trend.”

Apple Chief Executive Steve Jobs brought the issue of DRM to the public consciousness in February, when he posted a 1,900-word essay on his company’s website assailing the music industry’s insistence on placing electronic locks on digital songs. Two months later, London-based EMI agreed to sell its entire music catalog, except songs by the Beatles, through iTunes without DRM.

EMI said Wednesday that it expected its music sales to increase as a result of its new strategy.

The label’s willingness to sell unprotected music reflects growing sentiment in the music industry that copying restrictions have stunted the digital-download business by annoying consumers and also that they have failed to curb piracy. Purchased CDs can be copied onto computers and then spread digitally among friends, and almost every song is available illegally on peer-to-peer networks.

Copy-prevention software has irritated music buyers who want to move songs easily from a computer to other devices. Music they buy from other online stores won’t play on the iPod, and iTunes music won’t work on the music players of Apple’s rivals.

The music industry’s sales slump has also prompted a search for new ways to distribute music. Barney Wragg, global head of digital for EMI, said that MP3s are easier to play on mobile phones -- and cellphone music sales are expected to boom in the next few years.

Amazon, which launched a digital movie download store in September, is trying to lessen its reliance on selling physical goods. Sales of CDs, books, DVDs and other media generated nearly 70% of Amazon’s $10.7 billion in 2006 revenue.

The online retailer’s recommendation feature could refer someone buying a Grateful Dead book to digital songs by Jerry Garcia, or vice versa.

But Amazon could face a tough road without music from the other big record labels.

Global Crown Capital analyst Martin Pyykkonen said: “The question is whether anyone can make any kind of a dent on iTunes.”

joseph.menn@latimes.com

alana.semuels@latimes.com

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AMAZON vs. APPLE

Amazon says it will launch a digital music store this year with millions of songs from music giant EMI and thousands of smaller record labels, challenging Apple’s dominant iTunes store.

,,,BACKGROUND INFO:

Site visitors (April 2007)

Amazon: 39.4 million

iTunes: 28.4 million

Music sales:

Amazon: No. 4 U.S. music retailer, with 6.2% of all music sales in 2006, up from 4.9% in 2005, according to NPD Group. Trails Wal-Mart, Best Buy and Target.

Apple: No. 5 U.S. music retailer, with 5.5% of all music sales in 2006, up from 2.7% in 2005, according to NPD Group.

Product lines:

Amazon: Books, DVDS, CDs, toys, games, electronics, apparel, tools, housewares

iTunes: Downloads of music, movies, TV shows, games, podcasts, audio books

Annual revenues (2006):

Amazon: $10.7 billion

Apple: $19.3 billion

Headquarters:

Amazon: Seattle

Apple: Cupertino

Employees:

Amazon: 13,900