Amazon is readying its own separate music service to compete with Apple Music and Spotify, and “will release more details in the coming weeks,” according to Bloomberg, which cites a person with knowledge of the matter.
The streaming plan will reportedly cost around $5 per month and Bloomberg says Amazon will “probably lose money on the monthly fee.”
That should scare competitors like Apple, Spotify, and Pandora. Why? Because it suggests Amazon is prepared to lose a big chunk of money on the service if that means making Amazon’s Echo speaker family and its Alexa digital assistant part of your everyday life.
Let’s say Amazon loses $5 per person, per month, on the service. That’s a lot of money, but it would still probably be worth it, according to Greg Portell, an analyst at consulting firm A.T. Kearney. “Amazon’s currency is engaged users, not subscribers to a music streaming service,” he told Bloomberg. “If music helps them get you on their platform, the benefits for Amazon far exceed $5 a month.”
We don’t yet know what the full feature set for Amazon’s music service will be, and it could end up having a lot more limitations than the all-you-can-eat buffet of Spotify or Apple Music. An earlier report from Recode’s Peter Kafka said this cheaper plan will only work with Amazon’s Echo player, citing industry sources.
But if Amazon can afford to lose $5 per person, it potentially could put out a product that could compete with Spotify and Apple, and put them in a tough position. Spotify lost $194 million last year, and is reportedly looking to IPO in the second half of 2017. It’s hard to make money selling subscriptions to music streaming services, especially if Amazon doesn’t have to, and is trying to poach your customers.
The video playbook
Amazon has benefited from similar positioning in the video streaming market, where it competes with the likes of Netflix, HBO, and Hulu.
“We get to monetise [our subscription video] in a very unusual way,” Amazon CEO Jeff Bezos said this summer. “When we win a Golden Globe, it helps us sell more shoes. And it does that in a very direct way. Because if you look at Prime members, they buy more on Amazon than non-Prime members, and one of the reasons they do that is once they pay their annual fee, they’re looking around to see, ‘How can I get more value out of the program?’ And so they look across more categories — they shop more. A lot of their behaviours change in ways that are very attractive to us as a business. And the customers utilise more of our services.”
Amazon can use TV shows and music to help it sell more shoes, Echo speakers, or Prime subscriptions. Bezos doesn’t have to sweat the margins in the same way as competitors like Spotify or Netflix, whose entire business is built around a single offering.
Disclosure: Jeff Bezos is an investor in Business Insider through hispersonal investment company Bezos Expeditions.