Amazon reportedly inching toward a music service (SECOND UPDATE)

amazon prime

SECOND UPDATE: Amazon has announced an increase to the Amazon Prime subscription rate, from $79/year to $99/year. The change affects all new subscribers, and renewing subscribers as of next week.

The possible increase in Prime membership is viewed as a potential indicator of Amazon’s reported intent to start a streaming-music service. That’s a lot of “possible” and “potential” and “reported.” Another way to view the price hike is that Amazon might not be monetizing Prime optimally during a time when its quarterly reports are missing Wall St. estimates (as TechCrunch speculates).

Prime is an interesting hybrid product that offers two unique values: free shipping of items ordered in the Amazon department store, and free mobie/TV streaming in Amazon Instant Video. Calculating the worthiness of the $99/year price is different for the two groups of customers, to whatever extent those groups are distinct. Certainly, a music-streaming service would help justify a 25% price jump.

The only (fairly) certain points for now: Amazon is talking with record labels (see below), and Prime just got more expensive.

UPDATE: Billboard offers a report of discussions with music industry sources, indicating that Amazon’s negotiations with music labels is going badly, offering licensing rates that one label owner calls “insane.”

Interestingly, according to the Billboard report, Amazon is suggesting a fixed pool of money that would be divided among labels based on music streams played by users. This model differs from standard practice of paying a per-stream rate that accumulates without a fixed ceiling. With low proposed fixed pools (one for indies and one for major labels), Amazon appears to be attempting to devalue the wholesale cost of music.

The wholesale cost of music to labels and publishers is under continual negotiation with terms that vary from service to service, and also vary according to uneven government royalty regulations in the U.S.¬†Amazon’s advantage is its immense buying power and audience reach.

Another twist in Amazon’s reported music plan is to bypass current hits in favor of back-catalog music. How this would be a successful programming strategy is unknown, but the plan could be motivating Amazon’s hunt for bargain licensing rates.

Peter Kafka of Recode reports that Amazon is negotiating with music labels about an Amazon-branded music service. According to Recode’s sources, the talks are not flying along because Amazon is asking for more favorable licensing terms than those negotiated by music-only services.

We have noted before that it could make sense for Amazon to enter the music subscription field, especially if it were bundled into Amazon Prime. The company’s Prime subscription program is unique, offering free shipping throughout Amazon’s immense online department store, and unlimited access to Instant Video, with which Amazon competes directly with Netflix.

Amazon has hinted at a possible raise in price for Prime membership, from the current $79/year to $119. That jump would be a shock to existing Prime subscribers, especially those who are in it primarily for the free shipping. But for those who treat Prime as a media subscription, paying $119 a year (about $10 a month) for movies. TV shows, and music would be a powerful value in the online-media landscape — a lot of streaming entertainment for the money.

Music might be a glaring missing piece in the Amazon ecosystem, which includes the department store, streaming video, Kindle e-readers, and general-purpose Kindle tablets. Amazon is no longer a bookstore competing with Barnes & Noble; its main competitors now are Google, Apple, and Microsoft. In that context, plugging in a streaming music service can be viewed as a necessary strategy for retaining its hardware and Prime-subscription users.

Brad Hill