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iTunes at 66.2% of digital; Amazon MP3 sold at a loss

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.




by MacNN Staff

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Comments

  1. coffeetime

    Joined: Dec 1969

    +3

    It's all broil down to ....

    iPhone and iPod owners. It's more connivence to buy from iTunes and sync to Apple devices.

  1. Grendelmon

    Joined: Dec 1969

    -8

    Well,

    I hope amazon can keep it up. I've got several Macs, an iPod Touch and several netbooks. I switched from iTunes purchases to amazon because their music is DRM free, and for roughly the same price (if not cheaper) for albums/songs as iTunes.

  1. iphonerulez

    Joined: Dec 1969

    0

    How does a company keep a store running

    at a loss? That doesn't make any sense at all. For a short time, yes, but such a long-term strategy is foolish. Especially against a larger rival that can sell more of a product at a higher price and make a profit. Amazon's MP3 Store cannot last on its own. Amazon will have to absorb the loss in other areas. People keep saying iTMS will fail and have been saying it for years and yet it is definitely getting stronger. As Apple's device numbers increase iTMS could continue growing for years and will eventually crush smaller rivals.

  1. mytdave

    Joined: Dec 1969

    +8

    better store

    iTunes is seeing great success because of convenience, integration, selection, reliability, ease of use, and quality, plus the pricing is reasonable too. What's not to like?

    Amazon can't sell at a loss forever. Oh, and Grendelmon, the music at iTMS is DRM free, plus encoded in a higher quality 256kbps AAC format.

  1. chas_m

    Moderator

    Joined: Dec 1969

    +1

    Amazon could do a lot better

    Though I buy most of my music from iTunes, I'd be perfectly happy to use Amazon for MP3s more often if their ridiculous software for Mac (why is that required again, btw?) didn't SUCK SO HORRIBLY.

    I'm all for cheaper, but the "shopping experience" via iTunes is just so way better. I keep hoping Amazon will get the hint and simplify things, but now that I know they run the store at a loss they really have no incentive to do so.

  1. TomMcIn

    Joined: Dec 1969

    +1

    Are books covering Amazon's music losses

    I have bought a number of books from Amazon but will now double check to make sure they have the lowest prices. In any case, they must be using their profitable lines to cover their losses so are likely charging more for their books, etc than the should.

  1. bobdroid

    Joined: Dec 1969

    +1

    Loss Leader strategy makes more sense for Apple...

    I really don't get why Amazon is relying on a loss leader approach here, or why they even have to. That's generally a strategy used when you're trying to sell something else. If Amazon were selling some kind of iPod competitor, for example, they might use cheap music to help drive sales of that device. Actually, I seem to recall Apple stating a few years ago that they didn't make much on iTunes music sales after the publisher/artist's cut, but used the iTMS to support iPods and iPhones. I doubt that's still the case.

    Amazon doesn't really market their MP3 store that heavily, so why they'd undercut Apple to increase market share without an aggressive ad campaign to match it makes very little sense to me. I doubt they're using books or anything like that to cover their MP3 loses. If you go to buy a song for 99 cents, are you really going to jump on a $5+ book as an impulse buy?

    I do hope they figure out a more effective strategy, as I'd rather not see anyone (even Apple) with an overwhelming majority of the market.

  1. climacs

    Joined: Dec 1969

    0

    selling on low price

    is what you do when you have nothing else to offer.

  1. testudo

    Joined: Dec 1969

    -3

    so

    It's OK for apple to sell music and video at a loss (or break even), because, as has been stated here many times, they're doing it to drive sales of hardware.

    But Amazon does it to help push other products to customers and drive business, and it's some type of sham or cheap-a** business practice.

  1. testudo

    Joined: Dec 1969

    -3

    Re: selling on low price

    is what you do when you have nothing else to offer.

    And what does Apple have to offer at the iTMS that they don't "need" to sell on low price? It's the same c***.

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