Our take...
Prior to this UK launch Amazon's digital downloads had been confined to the US market. By rolling out a digital music service in the UK the online retailer is once again entering a market dominated by Apple's iTunes store (iTS). Amazon will be hoping to attract customers to its digital store through a combination of competitive pricing and the lack of DRM. Most of Amazon's MP3s are priced from £0.59 and can be played on any portable device, contrasting with the majority of the iTS catalogue which is sold at £0.79 per track for songs wrapped in Fairplay DRM.

As consumers continue to make the transition from purchasing physical units to digital downloads Amazon will be hoping to fare better than many of its physical retail rivals in capturing a share of the digital market. Traditional high street entertainment retailers such as HMV have failed to carve out a sizeable share of the online physical music sector let alone establish themselves as major players in the online digital space. As a result such bricks and mortar outlets are in danger of becoming an irrelevance in the eyes of music fans as CD sales dwindle. While Amazon is an established online physical retail brand the company faces similar difficulties entering the digital space.

But even if Amazon's digital store generates large sales volumes it is unlikely to produce substantial revenues for the retailer. Margins on digital music transactions are extremely low; Apple does not sell tracks as a means of generating significant standalone revenue but to drive higher margin hardware sales. While Amazon may have negotiated better terms with the labels than Apple these terms are unlikely to be favourable enough and, by pricing songs competitively to attract custom, Amazon's digital store could potentially make a loss. Unlike Apple, Amazon's content sales are the company's primary source of income and as music consumption continues to shift from physical to digital Amazon will need to find a way to turn its MP3 store from an incremental revenue generator into a core revenue stream.