updated 10:20 pm EST, Thu December 16, 2010
iTunes up to 66.2 percent in NPD digi music ranks
iTunes is continuing to increase its share of the digital music market in the US even in spite of Amazon MP3, the NPD Group found on Thursday. Amazon moved up 2.3 points from year-to-year to 13.2 percent of the American download market in the summer, but Apple climbed by an even higher amount, up three points to 66.2 percent. As a result, all of Amazon's gain came at the expense of smaller rivals, which combined were just 20.5 percent.
A transition from CDs to Internet music is still underway but has yet to compensate completely for the loss. CD sales were down 20 percent in the period, while downloads were up 13 percent and starting from a lower relative amount.
The shift came even though Amazon is typically cheaper and regularly runs special deals, such as heavily discounted albums on launch or the daily deal. Apple has mostly counted on its larger selection and familiarity to drive results.
Amazon's success online may, however, come from following the same loss-leading strategy for its MP3 store as it takes for the Kindle, sources for the Wall Street Journal said. The company is now allegedly paying the wholesale price for each album, usually between $7 or $8, and absorbing any losses compared to the public album price. In some cases, such as when it offered Kanye West's My Beautiful Dark Twisted Fantasy for $5, it was losing at least $2 for each copy sold. Apple has sold the same album for $12, but it was generating a profit on every copy.
Amazon has usually taken such an approach to build its market share solely through price, knowing that its regular online businesses and some other albums would mask any losses. The strategy hasn't necessarily been effective, however, as certain weeks can heavily favor Apple even with the price gap. Distributors have reportedly seen Apple taking 90 percent of the market where Amazon would have just six to 10 percent. While market share during the first week of Apple's Beatles exclusive isn't known, it sold two million songs and 450,000 albums from just the British band in that period, possibly overshadowing Amazon by a wide margin.