Two weeks ago, Amazon announced its intention to launch an MP3-only digital music store. By only selling songs in the MP3 format, it is rejecting the restrictive digital-rights management (DRM) software that every major music label except for EMI today wraps around each digital song they sell online. Recently, I spoke with CEO Jeff Bezos over the phone and asked him a few questions about his upcoming music store.
He made clear that he is building a download store, and has no plans to create a music subscription service like Rhapsody, as had once been rumored. As for bringing along the other music labels to his anti-DRM stance, he says:
Everything you buy will be in an MP3 format. I think it is our job to work with them and together work out a way [to offer MP3s].
It might be a case, though, of showing them the money. One of Amazon's secret weapons in this regard is its highly effective recommendation engine, which it uses to drive sales of CDs, books, and millions of other products today. When I asked Bezos if he expected Amazon's recommendation engine to be equally important for selling digital music, he replied:
Absolutely, yes. That is a signature feature for us.
If EMI starts to outpace its rivals because of its MP3 embrace, the other music labels will surely follow. I personally believe that would happen if EMI gave up its insistence of charging a 30 percent premium for DRM-free music. Bezos would not talk about pricing, so we'll have to wait and see if his deal with EMI follows the pricing set by the deal Apple (AAPL) struck with EMI.
In that case, the DRM-free songs are not MP3s, but a higher-quality format called AAC, which was part of the justification for the higher price. If Amazon (AMZN) ends up selling lower-quality MP3s, it would be hard for them to ask for the same premium. But if the songs are 99 cents or cheaper, that could give Amazon's store a slight advantage over iTunes for those particular songs.
Complicating all of this even further, is EMI's pending sale to a private equity firm, which may decide to break it up and sell its music library to a staunch DRM proponent like Warner Music. If that were to happen, the DRM-free experiment could be short-lived.