Last Week Amazon announced the launch of Prime Music, a music-streaming ad free service available to Amazon Prime subscribers. Prime Music secured the music to Warner and Sony labels as well as a handful of indies with a focus on the top 100 playlists. They have also hired staff to create pre-mixed genre playlists from their existing music library. Their initial library is limited to 1 million titles but they consist of the most popular songs among the general public.
Taking a wide view of Amazon is important to understand what this latest announcement could mean for competitors. Amazon Prime started out as a subscription service that offered free unlimited two-day shipping on all orders for a flat annual fee. The service now has over 10 million members. This mighty ecommerce giant began as an online bookseller. Amazon, similar to the impact Netflix had on the video rental market, decimated the brick and mortar book market and is now having a significant impact on big box retailers brick and mortar revenue. The company has grown into a huge online retail mall. Recently, the company has begun to make land grabs in the film, television and music, and as of last week, the music streaming space. It would be short sighted to not expect these latest developments by Amazon to stake out its territory in the entertainment industry as potentially disruptive.
Here’s how the competition stacks up:
Beats - Apple’s strong hold is in its hardware that has created a closed ecosystem for users, and the large selection of music, film and series and content titles that it has amassed and sells through iTunes. It is a massive force in digital content distribution. Now with Beats, the company has secured its place in the music streaming business. The service has promised to pay all artists equal royalties. Apple’s advantage is that Beats directs its users back to iTunes to purchase titles. The service essentially creates a platform to showcase the company’s unrivaled online music library to users.
Spotify - With over 40 million users, Spotify maintains a dominant place in the market. With Spotify you can select the titles you want to listen to and create your own library, which is why the payout to artists has become such a contentious battle. Spotify also actively makes deals with emerging talent through Spotify Artist and offers direct payouts. Spotify’s revenue depends on its paid subscriber base, which is currently 6 million. But their subscription base does not generate enough revenue to sustain them at their current burn rate. The company has recently added a free mobile service that includes advertisements to create an additional revenue stream.
Pandora - with over 75 million users and a huge library it has secured a significant in the music marketplace. One of the pioneers in music streaming, Pandora follows the radio model. Users cannot select the specific titles they want to hear but instead listen to an automated genre mix. Pandora reported $638 million in revenue in 2013 with content acquisition cost at $343 million. Their profitability depends on their ability to increase advertising revenue. Pandora is also actively lobbying to change federal laws regarding royalty rates.
As the number of Amazon Prime subscribers continues to grow it will become the default go to place for many of its users. Like iTunes, its advantage is that its streaming service directs listeners back its library of titles for purchase. If Amazon is able to amass a large library it could dominate the music streaming business. People like convenience. If for $100 I get all my shipping for free as well as access to digital content then why should I pay for additional services?
It would be short sighted to write off Prime Music as just an accessory. When in fact it is a very important strategic move in the overall content distribution ecosystem. It is unlikely that Amazon is going to take out Pandora, Beats or Spotify anytime soon but what is interesting is how the company is positioning itself in terms of big picture. It is likely that in the foreseeable future, we will need an Amazon subscription just to live our daily lives.