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Amazon Playing Apple's Song

Another source of music can only be a boon for the leader in music players. (AMZN) - Get, Inc. Report took a page from Apple's (AAPL) - Get Apple Inc. (AAPL) Report playbook, but its own music-downloading plans may play to Apple's strength.

On Wednesday, Amazon announced plans to launch a music-downloading service that will let users store and play tracks on multiple devices.

While Apple puts digital padlocks on most songs it sells through its iTunes online store, the company has been trying to chart its own course toward a world free of digital rights management. Its pace may quicken after Wednesday's announcement from Amazon, which adds to pressure from the European Union to let users play songs downloaded from iTunes on non-Apple devices.

In an essay posted on Apple's Web site in February, CEO Steve Jobs publicly broached the idea of removing its DRM software, FairPlay, from songs downloaded on iTunes. It already sells songs from recording label


without FairPlay.

Analysts expect that within the year, Apple will announce a deal with other major recording studios --


Universal Music Group or



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BMG -- to sell music without digital rights management.

Because of the company's size as well as its distribution of compact discs, Amazon's digital store plans may put added pressure on the remaining labels to allow music downloads free of DRM protections. Amazon's plans currently include more than 12,000 songs, including many from EMI. Users will be able to purchase songs for use on multiple devices including Apple's iPod and the Zune from


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While a DRM-free world might loosen Apple's grip on digital music downloads, Amazon's plans pose little threat to the company's share of the market for portable music players. So far, neither Sony nor Microsoft have been able to replicate Apple's success in creating a music player and downloading service that have excited consumers like the iPod and iTunes music services.

"There will always be additional vendors for music," says Ryan Jacob, portfolio manager for the Jacob Internet Fund, which has Apple as a primary holding. "But Apple's secret has been its ability to integrate hardware and software."

Selling iPods is much more important to Apple since the margins are significantly more meaningful on the devices than on music downloads. Having another source of music may spur sales of iPods, says Shaw Wu, an analyst with American Technology Research. In the last quarter, iPod sales dipped for the first time since their launch.

But it may be too soon to forecast the end of digital rights management. ThinkEquity analyst Jonathan Hoopes says DRM may come attached to music that is in greater demand. To download recent hits, such as the latest Maroon 5 track, consumers may agree to copy restrictions. Songs that have faded from the limelight, however, may be available without DRM.

"Consumption patterns in the future will depend on various factors, including price, recording quality, the popularity of the song, and whether it comes with DRM or is DRM-free," said Hoopes. "Apple's a leader in this space. They've got smart people preparing for this future."

Shares of Apple, which took a serious dip earlier in Wednesday's session on a subsequently retracted media report on delays to the company's releases of the iPhone and the Leopard operating system, were recently off 61 cents, or 0.6%, to $106.91.

Amazon's stock was up $1.05, or 1.7%, to $61.63.