How Many Millions Is Amazon Losing On Its 99 Cent Lady Gaga Sales?
How Many Millions Is Amazon Losing On Its 99 Cent Lady Gaga Sales?

Amazon is selling Lady Gaga's "Born This Way" album for .99 cents again Thursday (May 26) taking a loss on each sale in order to drive traffic to its site. The company offered the same promotion on the album's release day Monday.

How much is Amazon losing? For every unit it sells at 99 cents, it will lose about $7.40, according to Billboard's calculation.

If Amazon sold 300,000 units on Monday, as Billboard estimated, the loss is $2.22 million. But with a second day priced at 99 cents, the album could sell far more copies. If sales reach 400,000 units, Amazon will lose about $2.96 million. (Lady Gaga's label and management have stated that they were not alerted to or involved in Amazon's promotion.)

Amazon will lose money on each 99-cent sale because it is paying Interscope/Universal Music Group the standard rate for each unit sold. The similar title is selling for $11.99 at iTunes. The retailer typically keeps 30% of the sale price, meaning it owes the label and distributor the remaining 70% -- or $8.39.

But is a loss really a loss? The important aspect of this 99-cent promotion is the value of the increased traffic and awareness. It has new products to promote, Cloud Drive and Cloud Player. Google has soft-launched a competing cloud music storage service called Music Beta and Apple appears to be nearing a launch of its cloud music service. Considering all the media attention the promotion has received, it's not difficult to imagine Amazon getting back an equal value of consumer awareness of those new products.

There's other value in 99-cent MP3 albums. Amazon is an e-commerce giant with highly diversified products and a high average revenue per customer. Amazon also needs to increase its MP3 market share and price is one tool in its toolkit. Even if incremental MP3 sales don't provide a financial windfall, the company has plenty of other products to sell customers who stop by for a cheap album.