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Tuesday, April 15, 2008, 07:00 am PT (10:00 am ET)

Amazon expanding digital music sales without eating at iTunes

Much of Amazon's early success in digital music sales has come by way of customers who have never tried Apple Inc.'s iTunes Store, a sign of broader growth potential within the music download business.

NPD, one of the leading market research firms, said in a report Tuesday that just 10 percent of Amazon MP3 customers surveyed in February indicated that they had previously purchased music through iTunes.

"The fact that Amazon's early growth does not appear to be at the expense of Apple 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," remarked analyst Russ Crupnick.

Though having launched just six months ago, Amazon MP3 recently leapfrogged Wal-mart to become the number two purveyor of a-la-carte music tracks downloads in the US, behind iTunes.

Among the service's selling points are DRM-free tracks from all the major recording labels, a higher bit rate for digital files, and a price-per-download that is often lower than iTunes.

Still, Amazon has quite a ways to go before catching iTunes. The Apple download service does approximately 10 times more business on a unit basis than Amazon MP3, but it's the differences in the consumer demographic profiles of the two stores that's signaling a broader landscape for digital music downloads, according to NPD.

The research firm's initial consumer surveys found that 64 percent of the Amazon MP3 unit sales were traced to males compared to 44 percent for iTunes. Amazon MP3 showed the most strength among young adults aged 18 to 25, but only 3 percent of its customers were teens aged 13 to 17.

In contrast, the iTunes Music store sold nearly a fifth (18 percent) of its music to teens and also sports a healthy franchise in gift cards among that same demographic, while Amazon has a relatively small base of teen CD buyers.

"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."

NPD says its monthly consumer tracking measures unit sales of a-la-carte downloads from services like iTunes and Amazon MP3, but does not track subscription music downloads or revenue from eMusic and other subscription music services.