Amazon and Google are separately in talks with music industry executives about new digital music services that could break Apple’s grip on the fast-growing market for legal downloads.
Apple’s iTunes music store sells about 75 percent of all legally downloaded songs worldwide.
According to Financial Times report, both companies are in talks with big names inside the music industry about developing a legal music download service.
Senior executives of two of the world’s four largest music companies, who were gathered in Los Angeles for this week’s Grammy Awards, said they were keen to collaborate with both companies to create competition for Apple’s iTunes service, which claims a 70-80 per cent share of the world’s largest markets for legal digital music sales.
I do believe Amazon and Google will do something serious, the chief executive of one large music company told the Financial Times. We have had active communications in the last 60 days.
The report stated that Amazon was further advanced than Google in its plans, he said, and could launch a download service as early as the second quarter of this year. Google had “very serious” discussions with the music industry late last year, he said, but these are now moving more slowly.
Google said that it had “no plans at this time” to develop a music store, and has denied rumours that it could bid for Napster, the now legal online music company.
Both companies have been thrown under the general heading of large online brands that could do this, said Mike McGuire, research director at analyst firm Gartner.
Ted Schadler, analyst at Forrester Research, said that Google and Amazon could both match up with Apple in the public eye.
Both are huge brands, he said, probably bigger brands than Apple. But can they sell music really is the question.
Richard Doherty, analyst at Envisioneering Group, said a digital music service from Amazon or Google would “certainly shake things up more than Sony and Microsoft”, whose online music stores have had limited success.
The music industry’s eagerness to collaborate in the creation of new legal digital services shows its determination to ensure it does not lose control of its pricing as digital music takes an ever-greater share of the market.
McGuire said it would take a huge effort from any company to topple Apple`s digital music dominance. Both companies have powerful online brands, but that is only one part of the battle, he said. “The challenge is not only to create a huge online store, but to have it be seamless.”
Michael Gartenberg, vice president and director of research at Jupiter Research, said that a company would need an MP3 player on par with the iPod to compete with iTunes.
They would need a device that can capture the hearts and minds of consumers, Gartenberg said. No one’s had a device that is even close to Apple in the marketplace.
McGuire said that Apple is in an advantageous position because iTunes is compatible with Apple’s iPod, the world’s most popular portable music device.
Apple has the advantage he said, because they control the hardware; the software; and the source.
Last year’s three-fold growth in the legal market for music downloads and mobile phone ring-tones to $1.1bn almost offset the decline in sales of CDs. But music industry executives have complained that Apple’s model of charging a fixed 99 cents or 79p per track is holding back the market.
The executives would like to support new services that offer flexible pricing – the ability to charge a cheaper rate for promotions or for out-of-favour tracks while charging a premium price for new hits and longer classical works. They are also hoping any new service will offer the ability to deliver music to many different devices, rather than Apple’s iPod alone.
Gartenberg said that many consumers do not understand how subscription download services work, because they are accustomed to the paradigm of either hearing songs for free on the radio or buying music at the store and owning it.
Amazon’s interest in moving from shipping physical CDs to offering tracks and albums for digital delivery comes as it is also in discussions with film studios about launching a movie download service to counter the digital challenge to its DVD sales.
The head of one Hollywood studio told the Financial Times: “I think Amazon will do best” in the battle with Google, Yahoo and other online competitors to deliver films digitally.
Jeff Bezos, Amazon’s chairman and chief executive told analysts this week its investments in new digital services were “a longer term initiative for us.” He said he was “excited about the opportunity” in digital media and suggested Amazon could take a larger share of the digital media market than it currently has of physical media sales, given its existing online platform and brand position.
Studios have also held discussions with Wal-Mart, the world’s largest retailer, about installing kiosks in its stores from which consumers could use digital technology to download films on to portable discs.
Though Amazon and Google have not publicly committed to creating a music store, MTV is set to debut its store, Urge, at some point in the first half of 2006.
Gartenberg said that MTV Urge may not be able to go toe-to-toe with Apple, but it could differentiate itself from the rest of the legal music download services.