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Analyst: Amazon No Threat to iTunes

Analyst: Amazon No Threat to iTunes

by , 2:20 PM EDT, May 16th, 2007

Amazon announced that it will launch its own DRM-free online music store later this year, but Piper Jaffray analyst Gene Munster doesn't see it as a threat to Apple's iTunes Store. Although the lure of copy protection-free music will be a lure to Amazon's store, the added complication of using the service will keep customers at the iTunes Store.

DRM, or Digital Rights Management, has historically been seen as a impediment to using legally downloaded music on media players that are supported by the download service.

"In the past, new music stores have not worked because iPod users were limited to iTunes downloads due to DRM restrictions. But because of DRM-free music, that argument does not apply to Amazon, since users will be able to put the DRM-free tracks from Amazon into iTunes and then onto their iPods," Mr. Munster said.

Although on the surface it would appear that Amazon's copy protection-free music could draw customers away from the iTunes Store, the added steps necessary to get the music will keep users from switching. Download music from Amazon's store "adds a confusing and unnecessary step," he said. "We believe that iTunes offers the simplest way for music shoppers to browse the largest music catalog available."

Mr. Munster also expects that Apple will continue to enhance the iTunes Store to help maintain its lead in the music download market. The likelihood that Amazon will offer tracks not available at the iTunes Store seems fairly slim, removing another reason for users to move away from Apple's online music store.

"Given the fact that Amazon will not offer a bette selection, there will be no compelling reason for users to switch to Amazon," he said.

Mr. Munster is maintaining his "Outperform" rating and US$140 target price for Apple' stock. Apple is currently trading at $106.80, down 0.72 (0.67%).


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Observer Comments

Show: Subjects Only | Full Comments
Close Name:Sir Harry Flashman Posts: 792 Joined: 08 Feb 2007
Subject: Waiting Game

With apologies to Van Morrison and his song Waiting Game, but we need to see just how the Amazon service will work.

I may make purchases there If it is a simple matter of choosing a track or album, a one-click payment, and downloading the files that I can easily import into iTunes.

If I have to use some hokey program and go through all sorts of hoops then I probably would not use it.

Close Name:Biff Posts: 1479 Joined: 08 Apr 2004
Subject:

Quote
Sir Harry Flashman wrote:
With apologies to Van Morrison and his song Waiting Game, but we need to see just how the Amazon service will work.

I may make purchases there If it is a simple matter of choosing a track or album, a one-click payment, and downloading the files that I can easily import into iTunes.
I'm pretty sure its that last step that he is referring to. He proposes (and I tend to agree) that the need to import the files will be enough to discourage most users. That seems rediculous to people like us, but I can think of many people who would actually not want to have to deal with it (despite the fact that it is incredibly simple).

Close Name:Guest
Subject:

When has Piper Jaffray "analyst" (read puppet) analyzed anything negatively from Apple's perspective? Analyst = propaganda.

Close Name:Guest
Subject: Piper Jaffray "analyst"

When has he been wrong so far? It's hard to call him a puppet when everything he says comes to pass.
However, despite that I think his analysis on this one falls flat. But that doesn't make him a puppet.

Close Name:Guest
Subject:

When was the last time we had a thread that didn't insult analysts? Mac fanboy = propaganda.

Close Name:Guest
Subject:

Is it really that difficult to import songs into iTunes? I would think that iTunes has been designed efficiently enough for me to import my mp3 collection into it. Is this something terribly difficult to do? And if so, wouldn't that be a barrier to adopting iTunes in the first place? It would seem that either a) it's too hard to use iTunes with mp3s, so users wouldn't adopt it in the first place, or b) it's easy to use iTunes with mp3s and so this will not be a barrier to using the Amazon store.

Also, this confuses me... "Given the fact that Amazon will not offer a bette selection, there will be no compelling reason for users to switch to Amazon," he said. How can we consider that a fact when we don't even know how the store will work or what is going to be included?

I would think that if there is a wave coming of demand for DRM-free music, and the labels will eventually have to give in, then Amazon entering the market is good for the labels and consumers, but bad for Apple. Competition will mean the two stores will need to compete on pricing. Amazon, already being a proven online store with fantastic name recognition will be able to offer the labels a better deal to get it signed than Apple has been willing to give the labels.

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