The Amazon Effect - Lessons Worth Learning - hypebot

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Jordan

///Sell everything. With the addition of all four majors to Amazon's unprecedented indie label offerings, their catalog is deeper than anyone's.

- Maybe in the future, but right now Amazon's indie catalog is marginal compared to eMusic, and certainly not a better deal.

Captain Wrong

+1 Jordan.

Also, I find Amazon's DRM free mp3 store a little amusing compared to their unbox video service, which has some of the worst DRM in the biz.

Scott


"Variable pricing. iTunes fought it. Apple embraces it.
"

I think you mean Amazon embraces it.

Doug Petrosky

Sorry, but this falls in Apple's lap not Amazons. Apple got the first company to step up to the plate and remove DRM. Now the labels are agreeing to remove DRM on Amazon because of their fear of Apple. Amazon just happened to be a company big enough to prop up against Apple. It will be interesting to see how long the Labels try to punish Apple for it's success by not allowing DRM free songs but in the end I'm guessing that they will be compelled to do so. Then the difference will be that Amazon will be selling a format based on the Mpeg 1 spec and Apple will be selling music based on the much more efficient Mpeg 4 spec.

Apple has been holding the line for consumers and the Labels think they found a lap dog that they can control so that Apple will no longer be able to fight for us.

We are seeing this fight again with the Movie industry. Steve will give what he absolutely has to to get as much content as possible on iTunes. Assuming that it is successful he will then push to make things best for consumers, because that is what's best for Apple.

It is not altruism, It is just good business, and I hope Apple comes out on top.

Bruce Houghton / Hypebot.com

Thanks for the comments. Here are some replies:

1) Thanks for the correction. I did mean Amazon embraces it. Its corrected now.

2) as for EMUSIC - Not sure I can agree. Amazon has a bunch of important labels that eMusic does not: Alligator, Rounder, Drag City, Epitaph, Anti, Sub Pop, Fearless, Vanguard, Sugar Hill, Righteous Babe, Victory, Savoy, new Radiohead.

3) Bot sure the unBox DRM is Amazon's fault but rather that of a movie industry slow to change

4)Apple "embraced" DRM at a far slower pace than it needed to. There were thousands of indie labels that wanted to sell DRM free on iTunes and they took almost a year to get them up.

And on what basis do you see Amazon as the label's lap dog? The drove prices down, not up...

MonkeyT

@Bruce - "And on what basis do you see Amazon as the label's lap dog? The drove prices down, not up..."

I don't think Amazon had a lot to do with that. The labels knew this venture had to be price competitive. Even when other ventures matched price but still had weaker selection than Apple and DRM, they didn't succeed. If Amazon's store didn't mesh nicely with the iPod, having the same price and DRM free would also have struggled. Labels needed a competitor, and DRM-Free and better pricing got it running quickly. If it wasn't about beating Apple, labels would have gone broader with DRM-Free support in pursuit of money. Amazon was the lucky beneficiary of the real dogfight and was smart enough to keep their head down.

As for Apple not supporting DRM-free Indies, all of the Indies put together weren't enough business to justify risking the loss of one offended label. Once one of the labels broke rank, Apple had enough leverage to start making progress.

Bruce Houghton / Hypebot.com

Dear Mr. Monkey,

I usually let things pass...but do you work for Apple or just own stock?

Apple is great company. Never said it wasn't. But Amazon helped create an opening where there seem like none existed.

Rhapsody and Napster were/are iTunes competitors too. But it took a new player to make it happen - Amazon. And I can tell you for a fact that the labels fought to keep prices up and Amazon pushed them down eating a % of the profits they would have earned from higher prices.

I can easily be critical of Amazon - they are two slow to take risks, their site needs original content to ever be a music destination, and they're slow in wireless all at their peril.

But what they get so very right is being 100% customer focused...and that's something the labels need to learn.

Signed,
Nobody's Lap Dog

MonkeyT

@Bruce

Neither stock nor paycheck. I'M not claiming Amazon's a lapdog, but they got a deal because of the Apple situation that they wouldn't have gotten otherwise.

Everyone argues that Apple defines the terms today. That's crap. Apple successfully defined the terms at the beginning and played it brilliantly to define the market expectations of the consumer. That leverage is a huge deal now, but until the market developed it wasn't enough to let them break their contract by offering the labels' music DRM free, and frankly, it wasn't enough to let them strike deals with Indies that might scare the labels away. 70% of a small stick is a small stick. That's why the EMI and Indie deals were important. Until Apple had the leverage of a large market, the only protection they had were the original multi-year agreements the labels had signed. That's why the labels went year-to-year as soon as those agreements ran out. They didn;t expect Apple to be able to grow the market that fast.

A History lesson I'm sure you don't need: When Apple and the labels struck that first deal, there were NO legal online stores and NO working business model for downloads. The labels assumed that the first launch was an experiment where they held the trump card: licensing the right to deliver their music. Apple knew that as first mover (or at least the first *talented* mover) they could define a playing field where the trump card didn't amount to much. By the time the labels realized their mistake, 70% of their customers were informed and aligned against the market conditions the labels now desperately wanted to create. The labels can't pull out without losing that 70%, so their only choice is to support Apple's competitors. Weak competitors accepted the labels insane terms just so they would have a chance to get into this brand new market, and the new market ate their lunch because customers wouldn't give the new competitors any more slack than they would give the labels nutburger demands. Even Microsoft took bad terms from the labels on the hope that they could muscle this new market - and stumbled badly because of many other bad assumptions they made.

Amazon is the first player to come in from the same position of strength that Apple originally held: "If you don't give us good terms, we'll just wait on the sidelines because our business doesn't depend on this market." They were certainly not going to accept any worse terms than Apple had, and were in position to strongarm the labels into something better. The labels' choice is keep letting Apple run the show or to make a good enough deal to get Amazon to jump in, and it is in their benefit to give Amazon every advantage in order to cut Apple's lead as soon as possible. Without the fight with Apple, I doubt Amazon would have gotten any sweeter a deal than Napster, Rhapsody, all of the failed MS efforts or anyone else who's now either struggling or history. Amazon played this fear tremendously well. I don't think the labels are all that much happier with Amazon, but Apple remains the bigger threat and looking happy about the Amazon deal is the only publicly visible weapon they still hold.

Now don't assume for a moment that any party on any side of this acted for the benefit of the consumer. There are many millions of dollars at stake now, and may well be billions within a year or two. Appearing to be on the customer's side has always good business. It also happens to weaken the b@tsh!t insane labels even more.

NOW the question is did the labels set themselves up for racketeering charges by allowing lower pricing for Amazon than they are willing to provide others, including Apple. (One label alone wouldn't face that charge, but now that all of them struck that deal, I think they're vulnerable if they don't move soon.)

Apple can't simply change or ignore the contracts they are involved in: they have to negotiate a new deal, and at least two of the labels are trying very hard to not give Apple the same terms they gave Amazon. This is the only time when the labels' trump card means anything at all, but thanks to the expectations Apple successfully set in the consumers' minds, it's not enough to kill Apple's deal, just enough to keep it from getting much worse. The labels aren't going to give Apple any more leverage, but they're going to have to give others deals similar to Amazon's for the very same reason - just to keep Amazon from being The Gorilla. As long as there's a Gorilla, the labels will always be on the downhill slide. If they cut out the funny business and give a good deal to all who want to play, the market will stabilize and supply and demand will start to mean something again.

From now on, any new good deals will be up to the Indies, which hopefully will not be a suicidal "I can undercut that offer just to get the business" route.

Doug Petrosky

Ok, so the lap dog comment was for effect and only a warning of worst case. The main point is that Apple opened the music labels to online distribution. Apple signed the first deal for DRM free music and the real reason Amazon is in the position it is, is simply a reflection of the labels desire to create a competitor to iTunes so that Apple can't continue to control prices and require individual track sales.

Now the labels may have made a HUGE mistake in picking Amazon to be this company. It may turn out that they will be just as focused on holding down prices and maintaining flexibility as Apple has. We will see how this plays out in the next year, but the first company who agrees to sell a hugely popular song for $1.99 is the one who deserves to be labeled a lap dog.

Eliakim

Well, I certainly won't be supporting Amazon for music selections that I want. Since the time that Apple reached the agreement to remove the DRM from the AAC music files and supplied them at the higher bit rates, I won't go back to purchasing the lower quality MP3 files now. I'll either continue with the higher bit rate from the AAC files or simply use get the music from CDs and rip them to the higher bit rates (using AAC) myself.

Amazon offers lower quality MP3s and is therefore not a good buy. The higher-quality AAC files are the better deal.

Rick Harris

If you live outside the US you are not permitted to use this service. It's still crippled by the record companies and not worth shit to this Canadian. Why give it more prominence?

Adam

Great points. Apple opened the door for selling digital audio as a viable business, but it was Amazon that put the work in to get a 100% exclusively DRM-free store. Just because Jobs wrote a letter about how he supported DRM doesn't mean Apple spearheaded this (surely Amazon was working on getting DRM-free deals together before that letter was even published); Amazon has put their time and money where their mouth is, ensuring that every single song is DRM-free. Say what you will about the music labels, Jobs enjoyed his time to treat the relationship brashly, and perhaps he doesn't much care as long as he's selling ipods.

And the best part is now there is competition. Anyone who puts brand loyalty in front of price, flexibility, selection and value-added features (i.e. liner notes, booklets, etc...) when deciding their purchase should immediately be labeled a fan boy/girl.

Also, international AmazonMp3 is just around the corner.

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