updated 03:30 pm EDT, Sat May 28, 2011
Amazon took voluntary 3.2m loss on Lady Gaga MP3s
Amazon's two days of its 99-cent Lady Gaga album promo were costly but may have paid off in a market share battle with iTunes, both official and unofficial sources said Friday. Music industry contacts said that about 440,000 copies of the pop star's album sold in the two days of the promo, almost all of which were the less extensive but much cheaper sale version. Since Amazon was still paying Universal and Interscope the full $8.39 cut, Billboard estimated that Amazon MP3 took a loss of $3.2 million on all its sales.
The deal may nonetheless have given Amazon a significant if temporary spike in share for the album and the industry as a whole. Extra tips said that, based on projections, Born This Way will have started on the chart with 1.15 million copies sold, giving Amazon alone 38 percent of the copies. Apple is still expected to do well but would be much further back at 200,000 copies moved through iTunes, or about 17.4 percent. Best Buy was predicted to tie with iTunes while Target would hit 150,000 (13 percent) and Walmart would fall in at 125,000 (10.9 percent).
The Best Buy deal didn't include a promo that gave Lady Gaga's album away with a smartphone, since it wasn't an actual album purchase.
Amazon's move isn't likely to be repeated in the near future but may be a key to moving the company's largely static market share in the US. Its online music store has been growing and got 13.2 percent of US digital music at the end of 2010, but it has usually taken away share from smaller rivals, not Apple's 66.2 percent. Discounts at Amazon usually haven't been as deep and only recently escalated with 69-cent hit songs that again are likely to have been sold at a loss.
The strategy isn't uncommon at Amazon. Kindle books were also frequently sold at a loss until Apple pushed a switch to agency pricing, where publishers set the price, and companies steered the overall market away from price dumping and other techniques to gain share.