From The Street:
For much of the last year, companies have been scrambling to create their own Pandora and take a piece of the growing — but poorly monetized — music streaming market. Amazon may have just stumbled upon the solution.
In a message to Amazon Prime members in mid-June, Amazon unveiled Prime Music, a collection of more than a million songs and hundreds of playlists available to Prime members through the Amazon Music app. The service is accessible through Amazon’s Kindle Fire and Fire TV products, Android and Apple iOS devices, Samsung Smart TVs and speakers and just about any Mac or PC.
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So what separates Prime Music from Pandora One or Apple’s iTunes radio and its recently purchased Beats Music? Prime customers are already paying for it, bundled with a bunch of other services including two-day shipping of Amazon marketplace products and Prime video streaming of movies and television shows.
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Apple attempted to work around them with with iTunes Radio — and its failing attempt to use streaming to sell music downloads — but it discovered the streaming audience doesn’t care about buying music. Only about 2% of iTunes Radio listeners ever hit the “buy” button to download a song.
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All of the above are just an attempt to wring money from music that consumers are loathe to pay for anymore. The number of music download purchases dropped for the first time in 2013, according to Nielsen and has just continued to plummet in the first half of 2014. Interactive streaming like that offered by Spotify and Beats Music increased volume to 34.28 billion streams in the first quarter of the year from 25.44 billion streams during the same period in 2013. With music executives putting 1,500 streams at the equivalent of a full digital album, streaming equivalent albums have increased by 10.1 million units so far this year as download sales dropped by roughly 9 million units, according to Nielsen.
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When Amazon raised the price of Prime for new members from $79 a year to $99 earlier this year, it faced the same question that’s still puzzling Pandora: Where’s the value? Amazon responded by securing proprietary streaming content for its video service and tapping into its supply of cloud-based music content to cobble together a streaming service. It may not be quite as intricate as what Pandora offers or tailor its playlists to a user’s profile as the Music Genome Project does, but it’s a streaming service that existing Prime customers get as a freebie and that new customers see as added incentive to sign on for Prime service.
Prime Music does what the Fire Phone can’t and what Apple’s iTunes infrastructure won’t: It enhances the overall value of the service. Amazon’s Fire products have had a tough time keeping pace with Apple even at lower prices, but the integration and bundling of all of Amazon’s offerings — marketplace, video, audio, e-books, etc. — under one payment and on several different devices is making a strong pitch to consumers. Amazon isn’t pleading with them to ditch Netflix, Pandora or even iTunes on-demand services, but showing them how much Prime can offer under one roof.
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Amazon, however, took the extra step of setting up an all-inclusive pricing scheme and shoving everything else into it. Instead of streaming music and bringing in zero for it while hoping consumers find it in their hearts to download the occasional album, Amazon gave itself a base membership price to work with and built up. It’s not unlike what Costco did by making membership fees the foundation of its retail model, and much of that bulk shop’s growth and ancillary offerings including tire shops, auto sales and travel services are bolstered by that base consumer investment.
Link to the rest at The Street
PG says the music business started experiencing technology disruption with the introduction of the iPod and iTunes in 2001. No two disruptions are the same, but it’s instructive to study the development of different disrupted business.