: The rumor mills have gone into hyperdrive about Amazon.com facing off with Apple's iPod in the digital music market, now the domain of Apple Inc., Yahoo! and RealNetworks. The Wall Street Journal reported Thursday that talks between the world's largest e-tailer and music executives are nearing their goal, but the stakes have risen since prior speculation stoked a flurry of similar reports last summer. This time, Amazon is reported to be contemplating its own portable music-playing device, as well as individual downloads and subscription services. Like cellular plans that include the phone with the purchase of minutes, buying an Amazon plan would include the device.
"It's about time they did something about the threat to a key business," said Edward Weller, the senior retail analyst at ThinkEquity Partners in San Francisco. "They sell music already; why not bring it up to speed?"
Amazon declined to comment, as did the music companies mentioned in the report: Universal Music Group, Sony BMG, Warner Music Group Corp. and EMI Group PLC. But whether or not Amazon can make up for lost time in the all-important digital music bazaar, analysts say the company needs to get in.
"By necessity, Amazon needs to participate in that category," said Scott Devitt, senior analyst for Stifel, Nicolaus & Co. "They are uniquely positioned to benefit because of their delivery of physical media" such as CDs.
But they also are positioned uniquely to lose out, if the Web surfers behind the company's more than 55 million customer accounts start clicking toward competitors.
In the last fiscal year, Amazon sold $5.9 billion worth of books, CDs and DVDs, nearly 70 percent of all its sales. Those are heady figures considering that up until 2005, annual U.S. sales of recorded music shrank by more than $2.5 billion since a 1999 peak, according to a JupiterResearch report on the U.S. music market. That same report found that more digital music buyers prefer a flat-fee subscription service than downloading songs -- something that an executive of the Seattle-based media company RealNetworks thinks may be a habit developed over time.
"Some consumers start with a la carte, then learn about the benefits of subscription and switch," said Dan Sheeran, the vice president of consumer services for RealNetworks, the industry leader in subscription music with 1.4 million paying subscribers. "We believe that many consumers will choose their services based on the device they choose."
There lies a potential glitch in Amazon's reported plans.
"Anybody entering the market now from scratch has a tremendous amount of learning to make the components work flawlessly for the consumer," Sheeran said. Microsoft's software and the Samsung Napster player both stumbled because they didn't meet consumers' expectations.
And although Amazon has been investing in its technology in the past year, hiring more than 3,000 people, Apple has been busy selling the iPod that an Amazon device would have to compete against. In the three months leading up to the holidays, Apple shipped more than 14 million iPods.
Amazon got a cut of some of those sales, since different versions of the iPod took the top three places in Amazon's Electronics division. But that also means that in order to get at Apple's customer base, Amazon is likely to make its music downloads usable on any portable device.
"Amazon would serve itself well by having an open platform because that typically gets you to the sweet spot of the market: the masses," said Sean Badding, senior analyst for the California-based market research firm The Carmel Group. "It is also probably a profitable venture to go into a subscription model, which gives customers more peace of mind to download without looking at how many music titles they are downloading."
Offering a subscription-based service, rather than just individual downloads, fits with the idea behind Amazon Prime, the flat fee shipping service that Amazon Chief Executive Jeff Bezos said is making regular customers return to buy from more categories. Still, Amazon's particular forte -- its personalized recommendation services based on previous purchases -- would seem to work best to sell more individual downloads. The company has already offered free downloads of some songs, as well as some CDs once they are bought.©1996-2006 Seattle Post-Intelligencer