Resnikoff’s Parting Shot: Amazon Sells Shrewd Simplicity

As major labels slowly toe the MP3-based waters, Amazon is now taking a deep plunge.

An MP3-only, hardline approach would make little sense for a dedicated music store like Napster, mainly because the resulting gaps in major label content would become glaringly obvious.  Napster customers, who are looking for downloads and digital streams, would become repeatedly disappointed, and ultimately abandon the storefront.

But within an integrated approach that blends MP3s into a list of artist-related products, the plan is less problematic.  A search for Beyonce, for example, may not yield an MP3 download, though it will produce a number of CDs as well as DVDs, books, and box sets.  The absence of a download is less noticeable within that structure, and it allows Amazon to wait for labels to loosen DRM restrictions.  Moreover, Amazon carries the weight of an immense buying population, one that can be swayed to purchase featured artists, including independents.

The plan would be a death wish for a smaller, stand-alone retailer.   Major labels would simply starve the idea.  But Amazon carries unmatched traffic volumes and incredible influence.  That is the type of standoff majors dislike, especially given the imbalanced leveraging power that Amazon retains.   But will the Amazon entrance tilt the tables enough for labels to abandon DRM?

The ice is already starting to thaw around the edges.  EMI is now readying a DRM-free offering on the iTunes Store, one that features more expensive, higher-fidelity downloads.  Meanwhile, Universal Music Group, Warner Music Group, and Sony BMG have remained protectionist, though rumblings of a limited experiment involving Universal and Amazon have recently surfaced.

As labels mull the situation, independents are guaranteed to jump headfirst into the play.  That means that Amazon will return the favor by promoting the biggest independents within marquee slots, a move that offers immense visibility and priceless promotion.  Can majors afford to miss that opportunity?  They may opt to pace the sidelines a bit more, and observe this new, curious Amazon beast.

Why wait?  The reason is that the sales ramifications of ditching DRM are mostly unclear.  Will EMI actually sell more catalog DRM-free on the iTunes Store?  Will independent artists make a killing on the MP3-based Amazon store?  Unfortunately, the early history of the digital music sector has its fair share of hyped duds and hallow prospects, and that breeds a healthy degree of skepticism.  Meanwhile, an influential class of label executives remain committed to protected content, and unwilling to shed protections without a well-grounded justification.

Outside of the DRM debate, more serious questions linger over the viability of the paid download sector itself.  Sure, Apple has sold 2.5 billion paid downloads, but that total took four years to achieve.  Part of the soft response is being driven by price, though most label executives are uninterested in selling downloads for drastically reduced rates.  That creates an even more complicated decision matrix, one that carries significant time pressure.

Against that backdrop, Amazon is making a firm move.  The etailer is likely to accelerate the discussion on DRM, though the ultimate sales story may be disappointing.  Perhaps Amazon matches the running sales performance on iTunes, and tosses another billion into the bucket over the course of one year.  Or, maybe the integrated Amazon pitch is the secret sauce that the music industry has been waiting for.  Regardless of the outcome, Amazon is likely to significantly advance our understanding of just how sensitive consumers are to protected content.  And that consumer vote will happen with or without the participation of the majors.

Paul Resnikoff, Editor