Amazon Starts Prime Music, New Lure as Bad PR Swirls

Company Wants to Bind Customers More Tightly

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Amazon's new Prime Music service comes with playlists.
Amazon's new Prime Music service comes with playlists.

Amazon has introduced an ad-free music streaming service with more than a million songs, part of its effort to bind customers more closely to the company and discourage defections. Just don't expect the latest releases, or tracks from the world's biggest record label, Universal Music Group.

Prime Music, designed to compete with Apple, Beats Music, Spotify and Pandora, is available to subscribers of Amazon's $99-a-year unlimited-shipping Prime program. In addition to individual albums available for streaming, Prime Music also offers hundreds of pre-selected playlists such as "Pop to Make You Feel Better," "50 Great Epic Classic Rock Songs" and "Bedford Ave. Hipster Hits."

The online retailer has run into hurdles landing a deal with Universal Music, whose artists include Kanye West and Lady Gaga, according to people familiar with the plans. Neither appears on the list of Prime Music artists on the website today. Amazon offered Universal Music and other labels a lump sum in exchange for access to a selection of their catalog, an amount that Universal Music considers too low, said two people, who asked not to be identified because the discussions are private.

Threats to shop elsewhere
The service comes as Amazon faces an onslaught of bad PR on other fronts, with Universal Music becoming just the latest media company to refuse Amazon terms. CEO Jeff Bezos is also facing resistance from book publisher Hachette Book Group and Time Warner's movie studio Warner Bros., which both have held out for better terms from the world's biggest online retailer over their cut of sales. As a result, Amazon has stopped accepting pre-orders for Hachette books and Warner DVDs and slowed delivery of at least some of their products, prompting criticism from authors such as Malcolm Gladwell and others.

"I didn't think to insert myself," Mr. Gladwell, a Hachette author, told The New York Times. "But if this keeps going, the authors are going to have to get together."

Stephen Colbert, another Hachette author, used his TV show to encourage viewers to shop elsewhere, and dinged the Prime brand name in the process. "I'm not just mad at Amazon," he said. "I'm mad prime."

Unlike Spotify and Apple's Beats Music, Amazon's music streaming won't feature the latest releases and will focus on material that has been published at least several months ago, said the people familiar with the matter.

Amazon's lump-sum offers to music companies differ from other music streaming services that pay record companies based on how many times a track is played, one person said.

Amazon's contract disputes follow investor pressure on the company to become more profitable. The Seattle-based company makes less than 1 cent in profit for every dollar in revenue it generates, as Mr. Bezos spends on fulfillment centers, grocery delivery and new products like a smartphone it's expected to introduce at an event in Seattle next week. Amazon, whose stock is down 16% this year, has argued the investments will pay off in the years ahead.

To create its new music service, Amazon is leaning on music-industry veterans it has hired in recent years. Michael Paull, who once ran Sony Music's digital music business, and Drew Denbo, who did business development for the music services MOG and Rhapsody, have been helping to spearhead Amazon's effort, said people familiar with the work. Steve Boom, who joined Amazon in 2012 after working at Silicon Valley startup Loopt Inc. and as an adviser to mobile-video service Vuclip Inc., also has been involved, they said.

Boosting Prime
Amazon is trying to add to the value of its Prime membership, which in addition to unlimited shipping has been expanding access to an increasing amount of music and video content for subscribers.

Amazon's earlier forays in music have had limited success. Its download store trails Apple's iTunes store by a wide margin -- 63% to 22% at the end of 2012, according to NPD Group -- even though it features many albums and tracks at a discounted price. The company also has offered a cloud-storage program so customers can save all their songs on Amazon's servers and access them from any device, which hasn't been widely adopted.

~ Bloomberg News with Ad Age staff ~

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