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Apple's iTunes store reportedly catches the government's attention

May 26, 2010 |  2:20 pm


Attention this week has turned to the pricing of music at online retailers, with indications that the Department of Justice has begun looking into promotional strategies by Apple Inc. and Amazon.com Inc. Any probes are said to be in the "preliminary" stages, according to those familiar with the department's questioning, but are focused on whether Apple leaned on labels not to participate in Amazon's $3.99 "daily deal" promotions.

The Justice Department's deputy director of public affairs, Gina Talamona, declined to comment on the matter, neither confirming nor denying the inquest. Representatives from Apple and Amazon had earlier declined to comment to The Times. Yet all four music labels -- EMI Music, Sony Music Entertainment, Universal Music Group and Warner Music Group -- were contacted by Justice Department officials several weeks ago, sources told The Times' Alex Pham.

Amazon's low-priced fire sales are nothing new, as the digital retailer has tried to gain traction on Apple's iTunes store, the world's largest music retailer. U2's "No Line on the Horizon," for instance, was discounted to $3.99 during its first week of release, and Grizzly Bear's "Veckatimest" posted high digital sales numbers after being given the nice price of $3.99 in its first week, with 13,000 of its first-week sales of 33,000 coming from the digital marketplace .

There are certainly indications that Amazon's sales are boosting numbers. Just last week, Mumford & Sons' "Sigh No More," the debut from the English folk rockers, saw an 80% sales boost, up from 3,000 to more than 5,000. The album was available last week on Amazon at $3.99, and was recommended to fans of the Fleet Foxes.

What's raised eyebrows, however, is Amazon's recent push to have an exclusive sales window for titles that are part of the promotion, and Apple's alleged nudging of labels not to participate. Billboard Magazine wrote of the retail drama in March, noting that major releases from the likes of Mariah Carey and Vampire Weekend had been sold at discounted prices one day in advance of the industry's typical Tuesday release date. 

Billboard quoted an anonymous industry executive, noting that Apple complained when Amazon's "promotion morphed into something where the labels make arrangements to provide an exclusive selling window with Amazon for a big release expected to do a lot of business on street date."

"When that happened," the executive told Billboard, "iTunes said, 'Enough of that.' " Billboard wrote that executives at such labels as Capitol and Jive then declined to participate in the Amazon promotions. 

The alleged Justice Department inquiry was first reported by the New York Times on Tuesday  afternoon.

The Amazon-Apple digital price wars have made for an intriguing battle in the music space. When Green Day's "21st Century Breakdown" was released last year, fans who bought the album online on its first day could choose between a $4.99 download on Amazon.com or a $14.99 download from Apple's iTunes store. 

Amazon has been heavily discounting the cost of the album, as labels have decried the rapidly declining value of the CD. Overall music sales are down 19% this week from the comparable week last year, and as Amazon has been lowering the cost of music, Apple's iTunes store has experiment with higher-priced downloads, upping the price from 99 cents to $1.29 on hot tracks.

Apple's iTunes store remains the dominant player, however. According to the most recent data from marketing research agency the NPD Group, the iTunes store owns 70% of the digital marketplace, whereas Amazon boasts a 12% share. Amazon's position is growing, however, up four percentage points since the first quarter of 2009. 

-- Todd Martens

Photo: Screenshot of Amazon's Twitter account.

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