Apple’s Expensive DRM Decision; Amazon Gaining Ground?


Apple is getting praise for dropping the price of its DRM-free tracks from $1.29 to 99 cents; Apple is also maintaining that Amazon‘s move to sell DRM-free tracks for less than a dollar had nothing to do with it. We find this hard to believe.

That’s because while Apple (AAPL) dropped its retail price, its primary supplier of DRM-free tracks — EMI — has maintained their wholesale price of about a dollar a track. Factor in costs for bandwidth, credit card processing and other fees, and Apple is certainly losing a minimum of 10 cents per track, perhaps as much as 20 cents. (We don’t know whether EMI supplies its DRM-free tracks to Amazon’s store at the same price, but we understand that Universal Music Group, which is also selling DRM-free tracks at Amazon, has kept its standard pricing of about 65 cents to 70 cents per song; Amazon (AMZN) sells almost all of its tracks for 99 cents or less).

That’s certainly not a problem for Apple, which is minting money on iPods, and views as iTunes as a side business at best. But it is interesting: The only logical conclusion is that it’s lowering pricing in response to a competitor — something it has never done in its digital media business. Big music (and some consumers) have been clamoring for a real competitor to iTunes for years now. It appears that Amazon may actually be making headway.

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