How Many Millions Did Amazon Lose on Two Days of 99-Cent Lady Gaga Sales?
NASHVILLE -- Christmas came early for Lady Gaga fans this week, as Amazon sold downloads of the singer's brand-new LP, Born This Way, for just 99 cents on Monday and Thursday of this week.
Industry sources told Billboard.biz on Friday that Amazon sold some 440,000 downloads of the album -- nearly all of which were the 99-cent version (a more expensive deluxe version is also available).
So how much is Amazon losing? About $3.2 million over the two days the promotion ran, according to Billboard's estimate.
Here's the math: For every unit it sells at 99 cents, Amazon will lose about $7.40, according to Billboard's calculation. At $7.40 per unit and 430,000 units (10,000 shaved off total digital sales to account for some sales of the deluxe edition), the Gaga-related loss comes to $3.18 million.
The promotion was a boon for Gaga's first-week numbers, which are now projected to be approximately 1.15 million units, Billboard projects.
Amazon will lose money on each 99-cent sale because it is paying Interscope/Universal Music Group the standard rate for each unit sold. The similar title is selling for $11.99 at iTunes. The retailer typically keeps 30% of the sale price, meaning it owes the label and distributor the remaining 70% -- or $8.39.
But is a loss really a loss? The important aspect of this 99-cent promotion is the value of the increased traffic and awareness. It has new products to promote, Cloud Drive and Cloud Player. Google has soft-launched a competing cloud music storage service called Music Beta and Apple appears to be nearing a launch of its cloud music service. Considering all the media attention the promotion has received, it's not difficult to imagine Amazon getting back an equal value of consumer awareness of those new products.
There's other value in 99-cent MP3 albums. Amazon is an e-commerce giant with highly diversified products and a high average revenue per customer.
Amazon also needs to increase its MP3 market share and price is one tool in its toolkit. Even if incremental MP3 sales don't provide a financial windfall, the company has plenty of other products to sell customers who stop by for a cheap album.
The loss-leading promotion posed some questions in terms of how Billboard tabulates its weekly album-sales chart, but Billboard has decided not to revise its policies.