Amazon Could Launch Its Own Music Streaming Service This Week

Source: Thinkstock

Source: Thinkstock

Music enthusiasts and web-streaming listeners can expect another player in the busy crowded space of music streaming services. The New York Times reported that Amazon (NASDAQ:AMZN) plans to unveil a music streaming service as early as this week. The service is expected to give members of Amazon Prime free access to thousands of songs without advertising. However, the service reportedly won’t include the majority of new releases, and will also exclude the catalog of the Universal Music Group.

Subscribers to Amazon Prime recently saw their annual membership fee rise from $79 to $99. They receive free shipping, plus access to some movies and television shows. The music streaming service, which could launch as soon as Thursday, will likely give Amazon another perk to market to potential subscribers.

Negotiations for the music streaming service began 12 months ago, but met some resistance from labels and publishers that said that the financial terms Amazon was offering were low. During negotiations, Amazon told small labels that it would be paid for a one-year licensing agreement with shares of a $5 million royalty pool, to be divided according to Amazon’s calculation of market share. Large labels and distributors would receive paid one-time payments in exchange for access to specific titles. The New York Times reports that Amazon initially offered about $25 million in one-time payments, but it’s unclear if that number has changed as a result of negotiations.

Notably, Amazon successfully got two of the three major record labels on board with the new streaming service. Sony (NYSE:SNE) and Warner Music both signed deals with Amazon, but Universal did not. When Amazon’s contracts were rejected by other music publishers, Amazon obtained “compulsory” licenses under federal copyright provisions, which could indicate that its use of the songs may be more limited than originally planned.

Though Amazon’s service will offer only a small catalog, at least initially, the sheer size of its customer base means its streaming service could gather a significant number of users. As The New York Times points out, Amazon’s wide reach may help it to gain footing among the casual customer who has not yet signed up for one of the many competing music streaming services.

Those competitors include Google (NASDAQ:GOOG) (NASDAQ:GOOGL) Play Music All Access, Apple’s (NASDAQ:AAPL) iTunes Radio, Pandora (NYSE:P), or Spotify. Considering Google and Apple’s positions within the streaming market, there was speculation that Amazon or Yahoo might consider buying Pandora or Spotify. Amazon may not be in the market to buy another streaming service, though Google is in talks to buy music streaming service Songza to supplement its Play Store and its subscription service. Google also owns YouTube, which is a big destination for music streaming despite its focus on video, and is rumored to also be planning the launch of a subscription service.

VentureBeat posits that Google is interested in Songza because it’s “better than All Access and more cohesive than YouTube when it comes to music.” The statement highlights some of the challenges that Amazon faces as it enters the competitive market; subscribers look for an easy-to-use, comprehensive streaming service. That’s something that every major player is looking to acquire or develop. Apple recently made headlines by acquiring Beats Electronics and its Beats Music streaming service. But it’s worth nothing that, as The Wall Street Journal reported, Apple paid just under $500 million for Beats Music, while over $2.5 billion of the $3 billion deal went to the purchase of Beats Electronics. 

Given that there are so many competing services, potential customers have a lot to consider when thinking about trying a new service, or shifting away from one that they’ve been using. Time compared thirteen streaming services in March; for the sake of a quick overview, here’s how the big players measured up:

Beats Music, recently acquired by Apple, is described as a “hybrid of Spotify and Pandora,” giving users access both to a large catalog and to curation by humans. Google Play Music All Access lets users upload their own songs to access from anywhere, and lets them access 20 million songs, curate playlists, and create radio stations. iTunes Radio, limited to Apple products and platforms that support iTunes, lets users input an artist, song, or genre, and then automatically creates a station of related music. Pandora has a relatively small catalog of 1 million songs, and also plays music related to the user’s original choice of song, artist, or genre. Spotify gives users access to a catalog of 20 million songs with various options for on-demand or shuffled listening across multiple platforms.

Many of the services Time compared offer both free and premium versions of their platforms — something that Amazon won’t be able to do, given that its service won’t be separate from its Prime program. However, the monthly cost of the most popular options is about $10 a month, placing the $99 annual cost of Amazon Prime in a comparable range. Additionally, The New York Post reports that the Amazon service will place a heavy emphasis on playlists and specific music categories, though it hasn’t yet been revealed where specifically the service will fall in comparison to the spectrum of existing platforms.

Amazon’s move to launch a music streaming service seems to go beyond adding another perk to the list of Amazon Prime benefits. Its packaging as part of the Prime program will limit its appeal. But Amazon’s potential to disrupt the music streaming space, while currently unclear, could be formidable. Its video streaming service already competes with Netflix (NASDAQ:NFLX), and the e-commerce giant could be planning to expand what will start as a small program into a service meant to compete against the dominating players.

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