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Wednesday, May 16, 2007, 06:00 pm

Amazon playing catchup with Apple's iTunes

By Prince McLean

Amazon.com said Wednesday it plans to launch an online music store that will sell only DRM-free music tracks, a move experts are dismissing as a second-rate effort aimed at shadowing Apple's iTunes service.

In a press release earlier in the day, Amazon said the store, which should launch by year's end, will be authorized to sell the music catalog of EMI Music Group PLC in addition to tunes from 12,000 unnamed labels.

Executives for the Internet retailer said the move was influenced by consumers who say they want to be able to listen to their music on any device they choose. But is Amazon's push simply a bid for already conquered ground?

"The announcement is a carbon copy of Apple's deal with EMI," said Gene Munster, an analyst with PiperJaffray. "Amazon will offer the same DRM-free tracks as iTunes, and therefore will have no competitive advantage over Apple."

Given that Amazon will not offer a better selection, Munster attests that there will be no compelling reason for users to switch from iTunes to Amazon. He therefore doesn't expect a material impact on Apple's music business.

"In fact, although Apple's dominance frustrates music studios, the reality is that Apple's market share gives [Apple chief executive] Steve Jobs and iTunes the upper hand," the analyst said. "We believe this upper hand results in Apple's ability to be first to market with new features and more DRM-free music, as evidenced by iTunes being the first store to offer DRM-free music from a major record label."

While Amazon's plan is to offer users of Apple's industry-leading iPod an alternative to iTunes, Munster believes the strategy will add a confusing and unnecessary step to the digital download process, which will only serve to complicate matters for most users.

"We believe that iTunes offers the simplest way for music shoppers to browse the largest music catalog available," he said. "We also believe that Apple will continue to enhance the iTunes Store in order to maintain its lead in the online music space."

The PiperJaffray analyst remains bullish on Apple, holding an Outperform rating and $140 price target on shares of the Cupertino-based company.
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