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Amazon Gains Share of Shrinking Paid Music Market

NYT's Saul Hansell writes another great blog post, this time about Amazon's recent gains in the digital music market:

NPD’s annual survey of Internet users found that 10 percent of the music they acquired last year came from paid downloads. That is a big increase from 7 percent in 2006. But since the number of physical CDs they bought plummeted, the overall share of music they paid for fell to 42 percent from 48 percent.

NPD’s data [shows] about how well’s five-month-old digital music store is doing.

The music industry has high hopes for Amazon. All four major labels are allowing it to sell their songs as MP3 files, without any protection against illegal copying. Their goal is to win over some people who may have been stealing music and also to create a counterbalance against Apple, which some in the music industry believe has too much power.

The NPD data for February show that so far Amazon has had a strong start, although it is still tiny. It now has one-tenth the market share of Apple in the United States. Since Apple has largely dominated the per-track download sales, that makes Amazon the distant No.2 in the market, said Russ Crupnick, who runs NPD’s music service. That would give Amazon’s digital store an overall share of the American music market of about 2 percent.

Whither Zune? Inquiring minds want to know.

For Amazon, NPD found a different audience profile than iTunes users. Amazon doesn’t yet have the huge teenage audience of iTunes. Nor does it have a large female audience. But Amazon customers are more likely than those on iTunes to buy albums rather than single tracks.

One of the distinctive features of Amazon’s stores is that it sells tracks in MP3 format. Many Most [--Paul] tracks Apple sells still have copying restrictions known as digital rights management. But Mr. Crupnick suggested that that with Apple dominating the music market, most users simply don’t care. People who buy songs from Apple can listen to them on their computers and iPods without a problem. The restrictions only keep them from sending the songs to others or using non-Apple devices.

This proves the lock-in accusations about Apple are correct, of course, and that Apple's strategy is both brilliant and effective. We're at the point where complaining because a song will only work on an iPod is just about as ludicrous as complaining that a software application is limited because it runs "only" on Windows (as Apple promoters like David Pogue often do). The problem I have with iTunes content, however, has little to do with lock-in, though it's a concern. I'm more worried about quality (most iTunes tracks are in a lowly 128 Kbps format). Compatibility/portability is secondary to that, and would be less of an issue if more music there was at least unprotected and could be transcoded to a better format with no loss in quality. (Which is impossible with 128 Kbps tracks, period.)

In any event, Amazon MP3 is clearly the service for anyone who can think ahead further than the next 15 minutes. Hopefully, their popularity will continue to grow.

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