Digital Audio Insider -- blogging the economics of digital music

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March 24, 2008

Amazon.com Digital Payout Same As iTunes'
by David Harrell

Our first download sales from Amazon.com just showed up in our CD Baby account. We received 63.7 cents per download, after CD Baby's 9% cut. Which means that Amazon.com is paying out 70 cents per single-song download to CD Baby, which is the same as the standard payout for U.S. iTunes sales of 99-cent downloads.

No full-album download sales from Amazon.com have shown up yet, so I don't know what we'll receive for an $8.99 digital album. (That's the price for the Amazon.com mp3 versions of our two albums.)

Also, I don't know if that 70 cents is the standard rate for all labels and digital distributors, or if Amazon.com pays a different rate for tracks priced for less than 99 cents. (Most of Amazon's top 100 mp3 tracks are selling for 89 cents.)

My assumption is that it's a standard rate. Given that Amazon tracks are sold without DRM, I can't see the major label groups agreeing to a lower payout than what they're receiving from Apple for individual songs, particularly the best-selling tracks.

This FAQ at digital distributor TuneCore, however, notes that the Amazon.com mp3 store currently has four pricing tiers:

Amazon MP3 sells individual songs and albums at various price levels:

Front Line: The highest retail price in the store (good for new releases)

Mid Line: Slightly lower than Front Line (good for new releases and other current releases)

Catalog: Slightly lower than Mid Line (good for older or lower selling releases)

Special: The lowest retail price in the store (good for promotions, old and/or low selling catalog)

While the range of mp3 album prices is easy to observe in the Amazon.com mp3 store, it takes a bit of searching around to find individual tracks priced for less than 89 cents. But they are there, starting at 45 cents for some sub-two-minute tracks, and prices top out at $1.99 for extra-long tracks.

So there's obviously a lower payout rate for those bargain tracks and presumably a higher one for the pricier downloads. And while Amazon.com is competing with iTunes on price, it seems likely that those 89-cent tracks are profitable. Even assuming the same 70-cent "wholesale" cost, 89 cents still represents a 27% markup for a digital good.

tags: digital music mp3 digital downloads Amazon.com AMZN iTunes Apple AAPL

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