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Amazon's Digital Music Store Spurs MP3 Market, NPD Says

15 Apr, 2008 By: Erik Gruenwedel

A market leader in sales of music CDs, Amazon's DRM-free MP3 music service has quietly moved up to No. 2 (ahead of Wal-Mart) behind industry frontrunner, Apple's iTunes Music Store, according to a new report by The NPD Group.

Consumer trials in February of Amazon's service, which launched last September, found that only 10% of buyers had previously purchased music downloads on iTunes.

Amazon's service touts downloads without digital rights management (DRM) restrictions, a higher bit rate, as well as a price-per-download that is often lower than iTunes, according to The NPD Group.

The Port Washington, N.Y.-based research firm said it wouldn't disclose Amazon's unit sales or market share.

“The fact that Amazon's early growth does not appear to be at the expense of iTunes is a healthy indication that the digital music customer pool can expand into new consumer groups who have not yet joined the iTunes community," said Russ Crupnick, entertainment industry analyst for NPD.

Apple iTunes digital music sales continue to be the market dominator, with unit revenue 10 times larger than Amazon's service.

The study found that just 3% of Amazon's service users were teens (ages 13-17), compared to 18% for iTunes. The report said Apple's stronger base of iTunes gift card usage among teens compared to Amazon contributed to the gap.

Crupnick said Amazon's buyer base, which skews 64% male compared to 44% for iTunes, might not be in the iTunes market sweet spot.

"While it's still very early in the game, there's no evidence that Apple customers are deserting iTunes for a new alternative, either because of price or DRM restrictions,” Crupnick said. “Amazon may simply be opening new markets from their existing consumer base and introductory promotions."

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