Digital music stores may cure many old ills of the music business, like paying for unwanted filler tracks and needless CD manufacturing costs. But they sure don't stop the gamesmanship of the music business -- the shenanigans just move from music stores and radio DJs to websites and corporate boardrooms.
The latest example comes from Apple (Nasdaq: AAPL), whose iTunes music store has left traditional retailers like Wal-Mart Stores (NYSE: WMT) and Target (NYSE: TGT) far behind to become the largest music store in the world. The only serious online rival to iTunes' dominance is Amazon.com (Nasdaq: AMZN). iTunes holds a commanding 69% share of the digital music market, and Amazon's MP3 store is No. 2 with a bullet at 8%.
But Apple is taking exception to Amazon's marketing tactics and firing back by pulling some well-connected strings. Amazon's "Daily Deal" feature sometimes puts new music on the market the day before everyone else gets to sell it, including iTunes. Starting with Mariah Carey's album Memoirs of an Imperfect Angel and continuing through Vampire Weekend's Contra, the Daily Deal jump-start advantage appears to have the power to move Billboard charts -- and make a real difference to the sales of the albums it features.
Apple would call Amazon's advantage a false start, though. iTunes has threatened to reduce its marketing support for products that participate in the Amazon deal, according to a Billboard article. And that backroom play seems to be working the way Apple intended: Several big-name acts and some entire record labels have recently withdrawn from the Daily Deal.
"iTunes is getting frustrated because they work hard to set up and promote a release weeks in advance of the street date, and then lo and behold, Amazon jumps in there with this deal of the day and scrapes off some of the cream," an unnamed record label executive told Billboard. Indeed, the market maneuvering cuts both ways; there isn't a clear-cut "wrong" and "right" here.
But what is clear is that Apple is taking Amazon seriously in a way it never did with subscription services like Yahoo! (Nasdaq: YHOO) Music or Rhapsody from RealNetworks (Nasdaq: RNWK). Music sales is still just a little side business for Amazon, but it’s a major revenue generator for Apple. If Apple allowed Amazon to grab every advantage it could without fighting back, the iTunes monopoly could very quickly turn into a duopoly with two major music providers.
Steve Jobs ain't gonna let that happen any more than he'd let HTC get away with copying the iPhone feature for feature or let the Palm (Nasdaq: PALM) Pre tap into your iTunes library through unauthorized and unlicensed channels. Amazon will have to fight hard for every little slice of the digital music market, and there is no free lunch.
Is Amazon playing fair? How about Apple? I think both players are acting well within their rights, but feel free to discuss in the comment box below.
