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4/15/2008
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Amazon DRM-Free Music Has Little Impact On Apple iTunes

Just 10% of Amazon.com's MP3 customers had previously bought digital music from Apple's online store, an NPD Group survey reveals.

Amazon.com's growing DRM-free music store appears to be having very little impact on Apple iTunes, a market research firm said Tuesday.

While acknowledging that its data is preliminary and more time is needed to establish trends, the NPD Group said that in the month of February, just 10% of Amazon's MP3 customers had previously bought digital music from Apple's online store.

"Everyone expected a David and Goliath show when Amazon came along to knock Apple off its perch," NPD analyst Russ Crupnick told InformationWeek. "But Amazon is attracting its own customers and Apple is reasonably not affected."

Apple this month claimed to have surpassed Wal-Mart to become the largest U.S. music retailer. Apple based its announcement on consumer data collected in January and February by NPD.

NPD said Tuesday that Apple iTunes continues to dominate the Web in terms of music downloads, but sales on Amazon have been growing rapidly. In February, the Web site, which launched its music store in September, jumped to second behind iTunes in the number of tracks sold in the United States, edging out Wal-Mart, which slipped to third. Nevertheless, Apple sells 10 times as many tracks as Amazon.

CD sales, the main revenue producer for the record industry for years, are falling as Web sales rise, so indications that Amazon is bringing new customers to the Web is good news to the industry, Crupnick said.

"The industry is very anxious for the pool of music buyers to continue growing," he said. "The industry is desperate to look for something to replace that [CD] revenue."

Though far from conclusive, NPD's research so far indicates Apple customers are not deserting iTunes for an alternative, either because of price or restrictions from digital rights management technology embedded in music files for copyright protection.

Amazon appears to be attracting buyers from its existing customer base and through introductory promotions. The online retailer is among the largest sellers of CDs and has a loyal buyer base.

While much of the tech industry hailed Amazon's success in convincing record companies to license music without DRM technology, mainstream consumers don't seem to care. Copyright protection software often makes it very difficult to play music on devices and software from multiple vendors.

"DRM stands for 'doesn't really matter,' " Crupnick said. "The vast majority of people don't experience DRM [problems]. The iPod and iTunes work great together, so none of that really bothers consumers that much."

In time, however, the restrictiveness of DRM could become a problem. "It's something we want to watch," Crupnick said.

NPD's consumer survey also found interesting differences in the customer demographics of Amazon and iTunes. Males downloaded 64% of the tracks sold on Amazon, but only 44% of the tracks from iTunes.

In addition, Amazon showed unexpected strength among consumers ages 18 to 25, but only 3% of their customers were between the ages of 13 and 17. In contrast, iTunes sold 18% of its music to teens. ITunes has a strong franchise in gift cards used by teens, and Amazon has a relatively small base of teen CD buyers, NPD said.

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