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Why Amazon Will Do Nothing To Help The Music Industry

GUEST COMMENTARY from Marc Cohen who blogs @ Ad Supported Music Central and  the founder of Lirix, a tech company focused on ad supported music solutions. Early next week I'll write about why I disagree with Mark and think that Amazon's new mp3 store is industry changing.

Marc_cohen To much fanfare, Amazon launched its music download store.  As one would expect from Amazon, Amazonmp3 offers a superior on-line buying experience. Amazon has perfected the art of the up-sell and now it will weave music downloads into its synergistic retail web.

So Amazonmp3 is great for Amazon, but is it great for the industry?  I say that this new digital music storefront will do nothing to help the recorded music industry. Why? Because Amazonmp3 will not grow recording industry revenue. This is the critical point. Here is my rationale:

I don't believe that any more than an infinitesimally small portion of the digital music market has not bought a download because they couldn't find the right store. The available supply of music downloads exceeds the demand.

But, you ask, what about the fact that everything on Amazonmp3 is available in DRM free mp3 format?  Big deal. The issue of DRM-free music is a red herring. Consumers might say they don’t like DRM but their buying behavior shows they really don’t care.  iTunes dominates the digital music market, is growing and has DRM. CDs don't have DRM, but sales of CDs are tanking. Looking at these data points alone it wouldn't be unreasonable to conclude that people actually like DRM (just saying this to make a point).  Look at it this way: even though our country is at war, only about 20% of American adults know who the Secretary of Defense is.  So how many people do you think know what DRM is, or that restrictions are placed on the music downloads they purchase?  After all, most people use one brand of mp3 player and therefore never experience the effects of DRM.

The entry of Amazonmp3 may lead to serious price competition.  Wal-Mart and Amazon are the 50 Cent and Kanye West of discounters and both are getting into digital music in a big way.  Price competition will be great for consumers and will drive consumption up.  While the retailers may eat some discounts on digital music as loss leaders, serious price competition will put pressure on wholesale prices.  Thus, revenues from any increase in consumption are likely to be offset by reductions in price.

The music industry has to stop focusing on finding new ways to sell music. Consumers don't want to buy music anymore - they want to get music.  Growing revenue from recorded music can only happen by selling the time spent listening to recorded music; because the time spent listening to recorded music is growing.

The history of every major media – print, television, radio and the Internet – teaches that selling advertising is the way to monetize an audience’s time spent with a medium.  The sooner the record industry heeds this lesson, the sooner their recovery can begin.