Amazon Plays a Different Tune

Amazon.com (Nasdaq: AMZN  ) wants to make nice with the majors, as long as it doesn't have to yield any ground.

Billboard is reporting that the leading online retailer sent a letter to the record labels concerned with last month's launch of its Cloud Drive digital music locker service. Amazon is giving everyone access to 5 free gigabytes of storage that can be used to store music that can be played back through the Amazon Cloud Player wherever they have online connectivity. Those who buy at least one MP3 album a year through Amazon have a healthy 20 gigs of capacity.

The labels don't like it. They smell piracy concerns, but most importantly they feel that they should be compensated for the enhanced value of Amazon's free service.

Good luck with that, majors!

"There has also been speculation that we are looking for licenses for Cloud Drive and Cloud Player," Amazon's letter reads, according to Billboard. "We are not looking for licenses for Cloud Drive or Cloud Player as they exist today -- as no licensees are required."

Amazon compares its service to Google (Nasdaq: GOOG  ) Docs, Microsoft's (Nasdaq: MSFT  ) SkyDrive, or any cloud-based data storage or backup service. If they're not required to ink licensing deals with the labels, why should Amazon have to go the extra mile?

After all, it isn't Amazon that put the prerecorded music industry in its current predicament. Amazon is actually second to Apple (Nasdaq: AAPL  ) in music sales, so it's actually more friend than foe.

CD sales peaked in 2000 and have largely been tanking ever since. Digital music sales, which were booming during the early iTunes days, have flat-lined.

The labels can feel the pain. Citigroup (NYSE: C  ) is shopping for an EMI buyer. Warner Music Group (NYSE: WMG  ) has posted nine consecutive quarterly deficits, with digital sales taking a sequential dip for three straight quarters. Amazon's letter claims that music sales have taken off since Cloud Player's launch, but that's probably expected given the perk of 15 extra gigabytes of storage for those buying a digital CD.

Amazon is marking its territory, but it's also throwing out an olive branch. It hints that it may need licensing from the labels in the future for enhanced services that it's considering.

One obvious enhancement would be to eliminate the redundancy of physical uploads by simply allowing verified track owners the ability to stream Amazon's copy of a song. This is the renegade tact that sank Michael Robertson's MP3.com in legal losses a few years ago, but Amazon wants to make sure that labels play along if it does go that route.

The labels should listen to what Amazon can offer on that front. What do they have to lose that they haven't been gradually losing over the past decade anyway?

Is Amazon right or wrong in this fight? Share your thoughts in the comment box below.

Apple is a Motley Fool Stock Advisor pick. The Fool has written puts on Apple. Google and Microsoft are Motley Fool Inside Value recommendations. Google is a Motley Fool Rule Breakers selection. Apple and Amazon.com are Motley Fool Stock Advisor recommendations. The Fool has written puts on Apple. Motley Fool Options has recommended a bull call spread position on Apple. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Apple, Google, and Microsoft. Motley Fool Alpha LLC owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz once had his band signed to Sony's Columbia Records label. It didn't exactly pan out. He does not own shares in any of the stocks in this story. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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