Amazon 1 Billion MP3 Giveaway Offer; Under Pressure, Labels Warm To DRM-free Format

If others can do a million, we can do a billion: Amazon (NSDQ: AMZN) is giving away 1 billion free MP3 songs, as part of a Pepsi promotion that’s set to kick off Feb. 3 during the Super Bowl, Billboard reports. A breakdown of the arrangement entails:

— Pepsi is putting a promotional code on 5 billion soda caps. In order to get one song, users will need five caps in order to receive a free download on Amazon, which is creating dedicated section on its site for the promotion.

— All major labels have been asked to participate, though some have resisted due to Amazon’s proposed pricing per track. Amazon has offered 40 cents per song, Billboard said, citing unidentified sources. Ordinarily, Amazon pays between 65- and 70 cents for digital track sales. Apple (NSDQ: AAPL) pays labels about 70 cents per download.

— Amazon hopes to use Pepsi’s commercial promoting their union during the Super Bowl to build brand awareness for the e-tailer’s digital download site. Since its September launch, Amazon has taken a 3 percent share of the digital download market, Billboard estimates. Pepsi’s first big download giveaway involving 100 million songs via iTunes, also involved a high-profile spot during the 2004 Super Bowl, managed to attract 5 million individuals over three months, far short of the 25 million redemption target it initially set. In Europe, Coca-Cola did a similar download promotion with Apple two years ago.

The Billboard piece also says that the Pepsi/Amazon deal will add to the pressure on record companies to adopt the MP3 format more widely. Wal-Mart, (NYSE: WMT) which began selling DRM-free downloads in August, has been particularly aggressive in demanding more MP3s from record companies as it hopes to quickly increase its 2 percent share of the download market. Ironically enough, it’s Wal-Mart’s 22 percent share of the CD market that gives it leverage over the record companies in moving to MP3, who fear that defying the big box retailer could mean poor placement in its physical stores. For example, Sony (NYSE: SNE) BMG and Warner Music Group (NYSE: WMG) appear to be softening their previous anti-MP3 stands and are said to be considering a test of the MP3 sales.

The most recent convert is Disney-owned Hollywood Records, which counts Queen, Indigo Girls and Hilary Duff on its artist roster. The company has just started an MP3 trial with about 30- to 40 titles available via Amazon and on Wal-Mart’s online store.