Described as a “music locker,” Amazon.com’s (NASDAQ:AMZN) new Cloud Drive lets you store up to 5 gigabytes of a music library at Amazon, with storage bumping to to 20 GB when you buy digital music from Amazon itself. That music can then be streamed on any Google (NASDAQ:GOOG) Android device or web browser.
That Amazon beat Google and Apple (NASDAQ:AAPL) to the streaming music business is surprising, to say the least. Google was trying to finalize agreements with record labels last September, while the business model of the service Lala was almost identical to Amazon’s until it was acquired and subsequently shut down by Apple last year.
Lala’s abrupt end led most industry analysts to believe that Apple would quickly turn around its infrastructure for use in an iTunes streaming service, but it has yet to emerge. For now, Amazon holds a lock on the Web (or cloud)-based digital music business in the U.S.
But the question isn’t how Amazon’s move changes the digital music battle, but rather what it does for the holdouts in traditional music retail — Amazon has spent the last decade fighting a two-front music war: with digital usurper Apple, as well as CD retail giants Wal-Mart (NYSE:WMT), Best Buy (NYSE:BBY), and Target (NYSE:TGT).
The tech Web site Paid Content said Monday that the International Federation of the Phonographic Industry’s annual Recording Industry in Numbers report determined that physical music sales continued their decade-long descent into irrelevancy in 2010, falling yet another 14%. This slide hurt Best Buy’s first-quarter earnings, while its digital efforts have never found much success.
Wal-Mart, which has stayed neck-and-neck with Amazon as the leader of CD sales in the U.S., now finds itself in a particularly vulnerable position. Amazon’s business offers both superior digital services and a broader selection of physical options, including CDs and the growing vinyl niche market. Businesses that still eke revenue out of CD sales may see that segment’s inevitable extinction sped up exponentially by Amazon’s cloud services.
However, it isn’t just CD sales that are declining. Growth in digital music sales has almost dried up, growing by just 1% in 2010. The iTunes business model of downloading and storing MP3s may be as dead as CDs in another year or two.
It’s unclear, though, if cloud-based storage will revitalize the digital music industry. It remains to be seen whether Amazon’s service renews sales growth for the music industry or whether it’s subscription services like Rhapsody, Sony’s (NYSE:SNE) Music Unlimited and others that keep non-licensing music revenue flowing.
As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.
