Free Song Promotion Is Expected From Amazon

The major record labels lined up with Pepsi-Cola and Apple four years ago to give away 100 million songs through Apple’s online store, unveiling the promotion in a Super Bowl commercial with music from the band Green Day. The effort helped spread the word about Apple’s iTunes offerings.

Pepsi’s promotion is back this year on a much bigger scale — but with the star wattage provided by Justin Timberlake instead of Green Day, and Amazon in place of Apple.

The switch is an indicator of the continuing tension between the music industry and Apple. Pepsi’s earlier ad, set to Green Day’s version of the song “I Fought the Law,” prodded music fans to quit pirating music online and instead buy songs — legally — from Apple’s then-fledgling iTunes. Four years later, iTunes is by far the biggest digital music store, and the industry is taking a liking to Amazon’s rival music service, introduced in September.

Though iTunes blazed a trail in encouraging fans to pay for music online, record executives now complain that Steven P. Jobs, Apple’s chief executive, wields too much clout in setting prices and other terms. At issue now is whether the labels can help popularize a more industry-friendly service and accelerate the pace of digital sales.

Behind this strategy is a growing desperation: sales of digital albums and songs are rising far too slowly to offset the rapid decline of the CD, the industry’s mainstay product. CD sales slid 19 percent last year; after adding in the 50 million digital albums sold last year and counting every 10 digital songs sold as an album, overall music sales were still down 9.5 percent, according to Nielsen SoundScan.

In trying to nurture Amazon’s service, the four major record companies have offered it one potential edge. One by one, they have agreed to offer their music catalogs for sale on the service in the MP3 format, without the digital locks that restrict users from making copies of the songs. (Sony BMG Music Entertainment, the second-biggest company and the last holdout, signed on last week. Sony BMG is a joint venture of Sony and Bertelsmann).

All of the companies except the EMI Group still require Apple to sell their music wrapped in digital rights management software, or D.R.M., which is intended to discourage rampant copying. Some consumers say D.R.M. creates confusing problems, like a lack of compatibility between most songs and the devices sold by Apple and Microsoft. In fact, it was Mr. Jobs who, in February, called on the industry to drop its longstanding insistence on the use of the software, saying it had failed to rein in piracy.

In any case, the industry is waiting to see whether — and how quickly — Amazon can grow into a credible alternative to iTunes, and whether Mr. Jobs will stand by as his service, which commands as much as 80 percent of digital download sales, is challenged.

“This is really a stare-down,” said one major label executive who was briefed on the new Pepsi promotion and who requested anonymity because he had not been authorized to speak about it.

Industry executives say the rivalry could intensify if the two services jockey over who will be given exclusive rights to some songs or special promotions. A senior executive at another record company, who requested anonymity out of concern about irritating Mr. Jobs, said he was prepared to keep copy restrictions on his label’s songs on iTunes for six months to a year while Amazon establishes itself. Apple insists on selling all single tracks for 99 cents, while Amazon sells them for 89 cents to over a dollar.

Danny Socolof, president of Mega, the Las Vegas marketing agency that developed the promotion, which is called “Pepsi Stuff,” said the industry’s collective shift away from D.R.M. would “unleash a new age in the music business, and it’s sorely needed.” He said Pepsi’s alliance with Amazon reflected in part the record companies’ “desire to increase the retail space” online “and help level the playing field.”

In the promotion, to be announced Monday, consumers who buy Pepsi drinks will receive points that can be redeemed for music downloads at a special section of the Amazon site. Amazon and Pepsi, a brand of PepsiCo, will give away up to a billion songs, along with prizes like DVDs and electronics, though only a fraction of the eligible Pepsi packages are expected to be redeemed.

The biggest of the four music companies, the Universal Music Group, has declined to join the offer, executives briefed on the situation said, over a pricing disagreement. (Universal, a part of Vivendi, will still sell music through the Amazon service.) The Warner Music Group is also expected to participate.

Amazon is expected to pay the record companies around 40 cents for each track that is given away in the Pepsi offer; Amazon’s usual payment ranges from 65 to 70 cents, executives briefed on the deal said.

Industry analysts said they expected Apple to treat the situation as a minor annoyance. And an expansion of the digital music market is likely to increase sales of iPods, which are more lucrative than the iTunes store and dominate the digital player market.

Forcing Apple to continue selling restricted music is “kind of like a couple of pebbles in the shoe,” said Michael McGuire, an analyst at Gartner. To Apple, he said, “maintaining parity is probably somewhat important, but in the end, they’re still selling iPods.” He noted that Amazon also sells many iPods.

An Apple spokesman declined to discuss the company’s competitors but pointed to Mr. Jobs’s letter of February, which said Apple would embrace a D.R.M.-free world.

It is far from clear that Amazon’s unrestricted music files will be an advantage. Russ Crupnick, an analyst at the NPD Group, joked that D.R.M. should stand for “doesn’t really matter.” Mr. Crupnick said he did not think many iTunes customers were bothered by copy restrictions or would defect to Amazon to buy unencumbered music.

But, he said, Amazon may find an opportunity to expand the overall market. “The much bigger target is all of the people who don’t do digital downloading yet. How do I convince them that digital music is a good thing to begin with? I think Amazon is in a good position to do that, but it’s a long struggle,” Mr. Crupnick said.

Others suggest that the struggle may be so long that the industry will decide to experiment with other ideas, like the offering of music free through ad-supported Web sites, or subscriptions attached to cellphones.

“I’ve never thought that the pay-per-song model was really a replacement” for the CD, said David Goldberg, a former general manager of Yahoo’s music service who works at the investment firm Benchmark Capital. But the industry may endure more suffering before an answer emerges, he said. “It’s going to be a very dramatic change in the business. It’s just a question of when, not if.”
Source :http://www.nytimes.com