Surprise! (Not.) Amazon Readying Music Service Launch

Jeff Bezos' could dance to its own tune this month with a music service that targets consumers with advertisements and marketing messages similar to its book store and video download service.

The largest online store has tentatively set a mid-September date to launch the service, according to the New York Post, citing sources familiar with the project. Amazon did not return calls prior to publication, but rather sent an e-mail calling attention to a press release distributed in May.

The release states that Amazon would take the wraps off a music store later this year, offering millions of songs from more than 12,000 music labels in an MP3 format. The Seattle online retailer intends to free the music from copy restrictions known as digital rights management (DRM) by allowing consumers to download and transfer music limitlessly among Apple's iPod, SanDisk's Sansa and other MP3 players.

Amazon has long hinted at rolling out a digital download service that rivals Apple's iTunes Music Store, which accounts for 80% of the digital music sold. Not surprisingly, plenty of influential backers in the music industry who want to spur healthy competition among online digital music services show their support by running advertising and marketing campaigns on the site.



Sony BMG Music Entertainment's Columbia Records on Tuesday plans to premiere Bruce Springsteen's music video, "Radio Nowhere," at The agreement promotes the first song released on the New Jersey rocker's upcoming album "Magic," the first album produced with the E Street Band since 2002.

Analysts are mixed in their opinions on whether Amazon has the technology and advertising model to make an online digital music store profitable. The retailer has developed links and click-through ads similar to Google that connect consumers with advertisers based on historic searches and purchases. It also lets consumers buy or rent digital movies and TV shows through Unbox either online or through TiVo, and runs promotions for music labels that give consumers one free song download with purchase of a music CD.

The services offer businesses like Sony BMG a plethora of opportunities to target advertising and marketing messages to a slew of customers worldwide. "It's just a matter of turning on the service and coming to terms with content owners for distribution and royalty structure," says Lazard Capital Markets Senior Research Analyst Colin Sebastian.

The online retailer supports about 70 million active registered users who are inclined to buy media online, says Sebastian, who estimates Amazon will generate about $9 billion in media sales this year, or 60% of total business sales--up from $7.1 billion in 2006.

Not all agree the technology is ready for prime time. "Shockingly enough, I think Amazon's Web site is deficient in functions as basic as search," says Edward Weller, analyst at ThinkEquity Partners, San Francisco.

In a research note published last May, he explains "Glitches within the web site, ill-conceived or downright irrational associations in marketing and shortcomings in functions as basic as search suggest Amazon might have been trying to do too many new things at the same time, that the very aggressiveness of the Technology and Content ramp-up might have been undermining its effectiveness."

Aside from Apple, Amazon faces a host of other competitors. In late August, Nokia announced several services under the brand name Ovi that would allow its phones to download music, games and maps.

Along with the news, the Finnish mobile phone maker introduced the Nokia Music Store, striking deals with four of the world's largest music labels--Universal Music, Warner Music Group, EMI and Sony BMG. DRM from Microsoft restricts the number of times consumers can copy songs from their PC to phone and back again.

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