JAN 10, 2009 • Physical media and online distribution of music are no longer separate products at Amazon.com. The online retailer introduced its AutoRip service. In execution, any Amazon customer that purchases a physical CD will now find the MP3 tracks from that album added to their Cloud Player libraries, where they are available, free of charge, for immediate playback or download – even before the CD arrives in the mail. What’s more, any music CD purchased on Amazon back to 1998 qualifies as long as the album is one of the 50,000 titles the retailer has secured for the program. Amazon’s head of digital music told the Reuters news service, “When we picked those 50,000 titles we focused on having a substantial majority of our physical CD sales covered.” Consumers will be able to access their online music library at any time from any device linked to their account for free without any Cloud Player fees. Apple Corp., which holds 50% of the digital music market, according to the NPD Group, charges consumers twice for such utility – first as an iTunes purchase, then as a $24.99 annual fee to make those purchases persistently available online via iTunes Match.

Impact: We view Amazon’s AutoRip program as one of the most consumer-friendly initiatives we have ever seen via online commerce. Furthermore, this is an incredibly smart idea. Consumers may be warming up to digital sales, yet all indications are that a huge number of them really appreciate the security of possessing a physical copy of their entertainment media.  Last August Wired made a great argument about why Amazon should do a program such as AutoRip. For music enthusiasts the quality of CDs far outweighs that of MP3 when played on high-end equipment. The beauty of AutoRip is that it provides convenience to listen to music both on the go and on expensive stereo systems. AutoRip gives consumers security and the freedom to use their music purchases any way they see fit at no extra cost. Brilliant. Secondarily, programs like this could be a boon to physical retail – encouraging people to buy local and get the benefit of digital access. Amazon obviously has no physical storefronts, yet the model could easily be embraced by game retailers such as GameStop that have both long-standing customers and digital distribution resources of their own. Accountants will decry the loss of separate revenue streams, but the prize is increased market share as consumers weigh the obvious value equation. Amazon likely is eyeing a boost to its 16% digital music share (according to NPD), and we see no reason why the retailer would not extend this model to its games and book businesses. Other entertainment media retailers should take note and adapt quickly.