Analyst: Amazon No Threat to iTunes

May 15th, 2007 at 3:00 PM - Apple Stock Watch by Jeff Gamet

Amazon announced that it will launch its own DRM-free online music store later this year, but Piper Jaffray analyst Gene Munster doesnit see it as a threat to Appleis iTunes Store. Although the lure of copy protection-free music will be a lure to Amazonis 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 Amazonis 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 Amazonis 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 Appleis 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 Applei stock. Apple is currently trading at $106.80, down 0.72 (0.67%).

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