Amazon Diversification Plan; Music to the Ears

Standalone music streaming subscription service in the pipeline

E-commerce juggernaut Amazon.com Inc. (NASDAQ: AMZN), after establishing a firm foothold in the retail space, is looking to diversify its subscription services to enable it to generate steady revenues.

Source: Amazon
Source: Amazon

The Company introduced a new monthly subscription for Prime members for movies and TV shows at $8.99 per month in April 2016. As an extension to this service, the Company is preparing to launch a standalone music streaming subscription service at $9.99 per month, in line with rivals such as Apple Inc.‘s (NASDAQ: AAPL) Apple Music and digital music service provider, Spotify. Amazon’s $99-a-year Prime program has signed up over 50 million members worldwide so far.

Source: Amazon
Source: Amazon

Amazon is finalizing licenses with labels for the new service, which will be likely launched in July or August 2016. The Company now offers a free streaming music service, but with a limited catalog, to subscribers of its Prime shipping and video service. Amazon’s music streaming service, when launched, would have a comprehensive catalog of songs to take on market leaders in this space, with some currently offering more than 30 million songs on a subscription basis.

Deepens customer interaction

Amazon believes that the launch of the streaming music service would enable it to further increase daily interactions with its customer base. Although the Company will be a late entrant to the crowded music streaming space, a comprehensive music service would enable it to become a one-stop shop for content and goods. The new music offering is also intended to increase the usability of the Amazon Echo and the newly launched Amazon Echo Dot home speakers, which connects to the Alexa Voice Service to play music from Prime Music, Spotify, Pandora, iHeartRadio, TuneIn, and more using voice commands.

Source: Amazon
Source: Amazon

The launch of the new service will also diversify Amazon’s subscription offerings, paving the way for the Company to move to a single, annual subscription. For instance, Amazon recently began allowing Prime subscribers to pay their subscription on a monthly basis.

For the time being, Amazon will mostly offer basic media options through Prime, while selling additional subscriptions for consumers who want access to the entire package. In short, the music streaming service will be an added service to the Company’s recently launched standalone video service.

It is pertinent to note that other tech giants such as Alphabet Inc.’s (NASDAQ: GOOG) Google also have forayed into music streaming in recent years, with the goal of driving device sales and enhancing interaction on a daily basis. Similarly, Amazon hopes that its new service can be well integrated with the Echo, thereby reinforcing the speaker’s appeal to a diverse audience. Amazon’s voice-controlled speaker Echo, launched in 2015, has become a huge hit, prompting rival Google to launch its own.

Move towards annual membership services

While Prime Music is seen to be one of the perks of becoming part of Amazon’s annual membership program, the new service will be completely standalone. This is because Amazon needs a comprehensive music solution, including the Echo and Alexa Voice Service, if it wants to become a one-stop shop for all digital media. Such a move would also expand the utility of the company’s Echo speaker, which can play music from Prime, but has to latch on to other music streaming services for sound tracks that Amazon does not have the rights to.

As part of this game plan, Amazon’s approach to music streaming will soon become two-pronged. The Company will offer Prime Music for casual listeners and the unannounced subscription product for consumers who want the choice of listening to millions of songs and albums on an everyday basis for a fixed fee.

Music streaming services gaining popularity

The 2015 launch of music streaming services by Apple signaled the growing popularity of music as a subscription service, rather than paying for individual songs or albums. Music streaming services have revolutionized the way listeners consume music, as opposed to earlier times when listeners physically stored music on local devices such as mobile phones or laptops. While music streaming services provide listeners access to massive catalogue of artists and albums, it has made music available on all devices, including desktops, smartphones, tablets, or multi-room speakers. It is certainly not surprising that Facebook Inc. (NASDAQ: FB) is now considering launching a music streaming service of its own.

Spotify, a name that has become synonymous with music streaming since its launch in 2008, remains the leader with over 10 million users, 2.5 million of which are paid subscribers.

Source: Spotify's Filings
Source: Spotify’s Filings

Let us see if Amazon goes through with its plan and how well it does from there in the coming months!

Source: Yahoo Finance
Source: Yahoo Finance

Amazon’s stock closed at $715.24 on Monday, June 13th, 2016, having opened the day at $714.01. The stock touched a low of $711.16 and a high of $721.99 during the day. The stock’s average trading volume was at 3.35 million. Amazon’s market cap was at $337.47 billion as of Monday, June 13th, 2016.

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