Was Amazon Behind iTune's Price Drop?

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Includes: AAPL, AMZN
by: Joel West

As predicted, the Apple (NASDAQ:AAPL) announcements in the Phil Schiller keynote Tuesday morning at Macworld Expo were mostly minor, although it sounds like Schiller did a demo to the same standards as his boss would have.

The biggest news was that the iTunes Store is going DRM-free, with 256K files available from all four major labels (not just EMI) by the “end of the quarter.” Is this because of pressure from Amazon? Somehow I doubt it. Instead, I believe this is because Apple has concluded the long and difficult negotiations with the remaining labels to release music DRM free, as it claims to have wanted to do for years (or at least since it got into antitrust problems in Europe).

However, I do think Amazon (NASDAQ:AMZN) played a role in the price drop to 79¢ for back catalog songs. It could be that Apple won the same pricing terms that Amazon was already using to offer such prices, or perhaps it matched some improvement in operational efficiencies (or scale) that Amazon also has been enjoying.

More interestingly, the price cut and the DRM free songs seem intended by both Apple and the labels to boost lagging iTunes sales. Schiller announced that Apple had sold 6 billion songs, lower than what I’d expected. This could be because all the honest people have bought the missing back-catalog songs that they want, or it could be due to competition from Amazon (or others), or because during a slow economy, digital downloads are a luxury.

Still, the iTunes news was the highlight of an otherwise uneventful keynote. The other announcements were hardly exciting:

  • Incremental improvements to its (now web-enabled) application suites, iWork and iHome.
  • A bundle of the apps with 10.5 to get people to switch over
  • An updated 17" laptop, the most expensive (and thus least popular) model in the line.

Of these, the most intriguing updates were for

iPhoto

which promises to do automatic face detection to sort pictures of the same person together, as well as better integration of geotagging.

What I most regret about not seeing the keynote was missing the live Tony Bennet performance, singing (of course) “I left my heart in San Francisco.” If it shows up on YouTube or a TV station, I’ll post a link.