Amazon's Third-Quarter Profit Down 73%, Stocks Drop
Amazon's Third-Quarter Profit Down 73%, Stocks Drop

Amazon's Motivation for Selling Hit Songs for 69 Cents
-- It's not the signal of all-out price war, but Amazon has dropped the price of 204 hit songs to 69 cents. Among the select group of songs are Katy Perry's "E.T.," Jennifer Lopez's "On the Floor," the Black Eyed Peas' "Just Can't Get Enough" and Rihanna's "S&M." "E.T." and "On the Floor" were respectively the #1 and #2 songs at Amazon on Friday afternoon.

Amazon is known to work with labels to receive discounts on some of its MP3 sale items. But the company is also known to pay labels the standard rates for titles it unilaterally chooses to price at a deep discount. Pricing at $0.69 a song that would normally be priced at $1.29 would leave Amazon with a loss on every unit sold.

Chances are slim that Amazon lowered prices on this small group of songs because consumers were revolting against higher track prices (see item below); competitive strategy is a better explanation. Not only does Amazon seek to grab market share from iTunes, it now, of course, offers a cloud storage service called Cloud Drive that automatically stores purchases from its MP3 store. More MP3s sold by Amazon means more potential adopters of Cloud Drive. And, by the way, Apple and Google are rumored to be nearing the launch of similar services. That's probably in the back of Amazon's mind right now.

Conversely, iTunes 2009 Price Hike Is Not Working Out Badly at All …
-- In the two years since iTunes introduced the $1.29 price point for tracks in April 2009, revenues have increased while consumer outrage has been all but absent.

Digital track sales in 2010 rose by about 2% by volume and 12% by revenue, according to the RIAA. The average price of a track sold last year was $1.18. The RIAA's report did not specify how many tracks were sold at each price point, but a little math can paint a rough picture. In a scenario in which tracks are priced at either $0.99 and $1.29, track sales would average $1.18 per track if 63% of sales were $1.29 tracks and the other 37% were $0.99 tracks.

Raising the price of some tracks to $1.29 led to many warnings of impending cataclysm. For example, industry pundit Bob Lefsetz called the price hike a "stupid move, with potential short term gains and long term consequences." Ted Cohen of TAG Strategic predicted a doomsday scenario. "This will be a full PR nightmare," he told the Los Angeles Times. "It is for the music industry what the AIG bonuses are for the insurance industry."

But consumers appear to have taken the price increases - mainly to the most popular tracks - in stride. That acceptance has continued through the early part of 2011. Track sales were up 8.6% in the first quarter, according to Nielsen SoundScan. Digital albums were up 14.9%. The download market may not be saving the entire record industry right now, but it's not doing as bad as some people had expected.
( RIAA report on 2009-2010 sales and shipments)

What the SEC's Proposed Rule Changes Might Mean for Startups
-- The Securities and Exchange Commission is considering changing the rules for how private companies can sell stock to raise capital. What would changes mean for startups - including music companies - seeking to raise money from the public? Bill Clark, CEO of Microventures, explains:

"Startups will have access to more capital than they have ever had in the past through new, expanded investor communities. They'll have a greater chance of successful capital funding, providing return on investment back to shareholders, and stimulating innovative growth in emerging markets." (Mashable)

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