Netflix Down, Spotify to Go: Amazon Mulls Music Streaming Service

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Rumors have been surfacing that Amazon (NASDAQ:AMZN) may create a streaming music service similar to Pandora (NYSE:P) and Spotify to bundle with its other Amazon Prime offerings. Unnamed sources who spoke to Re/code said Amazon is currently in talks with music labels and executives to get the ball rolling on such a project, which seems to be a natural expansion of the service, since Amazon already offers the free streaming of movies and TV shows through Prime.

At least one of Re/code’s sources said a music streaming service from Amazon is looking unlikely, as music industry executives are pricing the rights to their content much higher than they were before streaming services became popular.

Offering such a service would make a $79-per-year Amazon Prime membership even more attractive by giving members access not only to the Netflix (NASDAQ:NLFX) competing video streaming site Prime Instant Video — which allows users to stream 150,000 movies and TV shows in addition to original programming Amazon has been at work developing — but a Spotify competing music service as well, in addition to other Prime perks like free two-day shipping.

Convincing people to sign up for Prime is the best way to encourage spending on the e-commerce site, as Prime members have been shown to make more purchases from Amazon than non-members. If you’re going to pay a fee for a Prime membership, why not purchase anything you need from Amazon rather than another online retailer or even a brick-and-mortar store? The “free” video streaming is further bait to get users to pay for the membership, and adding a music option could be just the push a Spotify subscriber and frequent Amazon shopper might need to be convinced to go Prime.

Re/code pointed out that Amazon has made hires with experience in music streaming services in recent years and that creating a streaming service would be a natural extension of its iTunes-esque MP3 store through Amazon Cloud. In 2012 Amazon hired Michael Paull, a former music executive at Sony (NYSE:SNE), to lead its digital music division, and Drew Denbo, who has experience running business development at Rhapsody. In 2013 the company hired another former Rhapsody employee, Adam Parness, who was in charge of licensing at the company.

When Amazon reported its fourth-quarter earnings, CFO Tom Szkutak said that a price increase for Prime memberships is coming. That price hike will be an increase of between $20 and $40. This comes after Amazon already raised the price non-Prime customers have to spend to receive free shipping from $25 to $35 in the fall.

“Even as fuel and transportation costs have increased, the $79 price has remained the same. We know the customers love Prime as the usage of the shipping benefit has increased dramatically since launch. On a per customer basis, Prime members are ordering more items across more categories with free two-day shipping than ever before,” Szkutak said. Throwing in something like a music streaming service might make the price hike easier for Prime members to swallow.

In addition to free two-day shipping, Prime membership also provides free borrowing on certain Kindle titles in addition to Prime Instant Video. Szkutak avoided a question during the call about whether some of those services could be eliminated from the membership to keep the price down for customers interested in maybe only receiving free two-day shipping but could live without the streaming options. “In terms of details of how we would roll out the Prime price increase that we are considering, you have to wait on that,” he said. “Customers certainly love Prime.”

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