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Amazon.com Stubborn in Music Business

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Danny Howard

Amazon.com, Inc. is rumored to be offering on-demand music streaming to Amazon Prime members in the future.  According to a Wall Street Journal article, the website has been “toying with a streaming-music service for several years as it has watched the rise of Pandora Media, Inc., Spotify AB and others…” (WSJ Karp and Bensinger).  Amazon is already viewed as a resourceful business with many options, such as free two-day shipping and instant streaming video, and an abundance of products from apparel to household appliances. Now, they are potentially taking another step in improving its features.

It is surprising that Amazon has not already executed a program with the skyrocketing use of these other streaming services, most notably Pandora and Spotify. As the article states, the company has negotiated with record companies and music publishers to stream their music, but financial discussions have been stagnant. The website will also be increasing the price of an Amazon Prime account as much $40 and will not comment on the subject, which raises the question: “Why is Amazon so stubborn and secretive?”

Amazon is adamant that the music companies they partner with should only receive a fixed amount of money of $20 million, instead of compensating them off commission and how often their songs are listened to (WSJ Karp and Bensinger).  This would save Amazon from Spotify’s complicated position where the “total royalty pie is split among all rights holders based on the percentage of total Spotify streams their songs garner” (Luckerson).  What is even worse is that the music would be added on a limited basis to Amazon.com and many new songs would not instantly be added to Amazon.com.  This does not seem like an enticing offer from Amazon to music companies that likely have contracts with other online music suppliers.

Time limits to how many times a user can listen to a song or album would be in place while a “Buy” button looms on the screen. Although the music suppliers seem to be offered a worse deal, subscribers would be not receiving a bargain either. This is especially true with an increase of potentially $40 for the yearly Amazon Prime subscription, from $79 to $119. It is a steep raise, and Amazon needs to back up what benefits customers will receive by paying a higher bill or risk driving them away.

In January, Amazon made a statement that the jump in price is to “offset the costs of shipping merchandise as well as streaming-video rights” (WSJ Karp and Bensinger).  This may not deter a current subscriber from renewing their subscription, but new customers’ interest may easily plummet with a three digit price tag.  Amazon could partially explain this with a new feature.

Completion of a music-streaming service by compromising with record companies would be that extra asset Amazon.com needs to convince consumers that Amazon Prime is worth the investment.  Ideally, there would be no price increase but with Amazon.com set on this, the idea that they are adding an asset along with an increased price could aid the sales pitch.  The free two-day shipping, instant streaming video, and free books, among other benefits, are useful but pairing these up with an online music streaming service could be the ultimate selling point for the more expensive Amazon Prime account.

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Karp, Hannah, and Greg Bensinger. “Amazon Working on Music-Streaming Service.”The Wall Street Journal. Dow Jones & Company, 11 Mar. 2014. Web. 14 Mar. 2014.

 Luckerson, Victor. “Time.com.” Business Money Heres How Much Money Top Musicians Are Making on Spotify. 03 Dec. 2013. Web. 19 Mar. 2014.

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