One of Amazon’s biggest potential weapons as it takes on Apple’s market-dominating iTunes music store: a huge cadre of affiliates which it pays commissions to refer sales. In an email sent to affiliates this morning, Amazon said it would pay a 20% retail commission for MP3 sales through Dec. 31, and a 10% rate thereafter. Apple, meanwhile, offers a 5% commission — which we don’t see changing anytime soon. By linking visitors to Amazon’s store, affiliates make about 18 cents per 89-cent download referral, while they would make about 5 cents for referring a sale to iTunes.
This will decimate Amazon’s margins: Labels generally take 66 cents to 70 cents for each 99 cent download, leaving music retailers like Apple 30 cents or so to cover the cost of credit card processing, bandwidth, etc. Handing 18 cents of that to affiliates would make it nearly impossible for Amazon to make money on each transaction. (It’s possible that EMI and Universal Music Group, the two majors that are selling their music via Amazon, have cut their wholesale prices with Amazon in order to encourage an Apple competitor. But unlikely.)
But Amazon certainly isn’t concerned about making money on digital music in the short-term. For now, it simply needs to get traction against Apple’s near-monopoly of the digital music business, and this seems like a clever way to aid that effort.
Meanwhile, conventional wisdom credits Amazon for getting Apple to cut the prices on its DRM-free music: Apple announced today that its DRM-free songs, which were originally $1.29, are now selling for 99 cents, like almost every other song its iTunes catalogue. All of Amazon’s songs are DRM-free, and almost all are 99 cents or less, with many priced at 89 cents.