J Alex Halderman notes that MP3s downloaded from Amazon.com do not include watermarks that tie the files to the customer who downloaded them. That’s an important difference from the DRM-free tracks available from the iTunes Music Store. Here are the downsides of watermarking:
Individualized watermarks give purchasers an incentive not to share the files they buy, or so the theory goes, but, like DRM, even if watermarking does reduce copyright infringement, that doesn’t necessarily mean it makes business sense. Watermarks create legal risks even for customers who don’t engage in file sharing, because the files might still become publicly available due to software misconfigurations or other security breaches. These risks add to the effective cost of buying music for legitimate purchasers, who will buy less as a result.