Amazon in talks for launching a Digital Music Service

Amazon logo Amazon is having discussions with major record labels (which include Universal, Sony BMG, Warner and EMI) as well as digital music player manufacturers for putting forth music which will compete with the market-dictating iTunes. The plans call for Amazon-branded music players that would be highly discounted — or even free — in connection with a subscription music service. The service is to be started as early as this summer.

The program would work very much on the lines of a post-pay cellular plan, where a customer receives a phone at a discount in exchange for a long-term subscription. A flat monthly fee would be charged, and Amazon is even considering pre-loading the devices with songs suggested by the online retailer using the consumer’s music buying habits.

Sources told the Wall Street Journal Thursday that deals had not yet been finalised with any of the major labels.

A potential hardware partner for the service could be Samsung, however representatives for the company were not responding to requests for comment.

David Card, vice president and research director at Jupiter Research, said such news is no surprise. “Amazon has a great chance to lower the customer acquisition costs that are so crippling to Napster [and other’s] profits right now.”

Card continued, “Problem is, can Amazon learn how to do programming?”

Moving into digital music would be a logical step for Amazon, as physical media accounts for 70 percent of Amazon’s total sales. With the increasing amount of consumers opting to purchase electronic versions of music and films, Amazon risks shrinking revenues incase it doesn’t go
ahead and migrate to digital delivery.

Another factor that could quickly make the Seattle-based online retailer a strong player is its strength in digital music player sales. About 10 percent of all players sold in the US are sold through the site, and Amazon would obviously market its own offering above any other competitor,
including Apple.

Analyst Martin Pyykkonen of Hoefer & Arnett said that from a branding perspective, the idea makes perfect sense.

“Amazon has the potential to move up fairly quickly and become a strong brand in that space,” he said.