(Updates with Amazon executive’s comments in fifth paragraph.)
June 12 (Bloomberg) -- Amazon.com Inc. introduced advertising-free music streaming with more than a million songs, ramping up competition against Apple Inc., Spotify Ltd. and Pandora Media Inc.
Prime Music is available to subscribers of Amazon’s $99-a- year unlimited-shipping Prime program, the company said in a statement today. The service doesn’t offer many new releases or tracks from the world’s largest record company and instead features hundreds of pre-selected playlists such as “Pop to Make You Feel Better” and “50 Great Epic Classic Rock Songs.”
The move reflects a recognition by Amazon that the online music industry is shifting to streaming -- where a customer pays for access to songs instead of owning them -- as digital downloads have declined. Apple last month agreed to buy Beats Electronics LLC for $3 billion, partly because of the Beats Music service that gives the iPhone maker a foothold in Internet-based streaming.
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 library of music and video content for subscribers.
“What started as a shipping service has evolved in to a membership service,” Steve Boom, Amazon’s vice president of digital music, said in an interview. “We think we can bring great value to our Prime members and in doing so we can create deeper and longer-lasting relationships with our Prime membership.”
Yet Prime Music has run into hurdles landing a deal with Universal Music Group, the world’s largest music company, 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 considered too low, said two people familiar with the matter, who asked not to be identified because the discussions are private.
Boom said negotiations with Universal Music are still under way and that the parties will “just keep talking and hopefully come to an agreement in the future.”
Amazon Chief Executive Officer Jeff Bezos called the service “the latest great addition for Prime members.”
Universal Music is now the latest media company embroiled with Amazon in a money dispute. The Seattle-based company is also facing resistance from book publisher Hachette Book Group and Time Warner Inc.’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.
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. Those tracks still occupy spots at the top of the charts, Boom said. The company is also counting on playlists and a recommendation algorithm, similar to Amazon’s main shopping website, to steer people to music they’ll enjoy, he said.
“We’re not promising our customers out of the gate all of the worlds’ music,” Boom said. “We’re promising them a really great music catalog.”
Amazon’s lump-sum offers to music companies differ from other 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 company makes less than 1 cent in profit for every dollar in revenue it generates, as Bezos spends on fulfillment centers, grocery delivery and new products like a smartphone it’s expected to unveil at an event in Seattle next week. Amazon, whose stock is down about 17 percent 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. Boom joined Amazon in 2012 after working at Silicon Valley startup Loopt Inc. and as an adviser to mobile-video service Vuclip Inc.
Amazon’s earlier forays in music have had limited success. Its download store trails Apple’s iTunes store by a wide margin -- 63 percent to 22 percent 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.