Amazon's Prime Music vs Pandora and Spotify: Is Good Enough Enough?

The long-rumored streaming music service for Amazon's  (NASDAQ: AMZN  ) Prime subscribers has finally launched.

Dubbed Prime Music the new offering was released into Apple's (NASDAQ: AAPL  ) app store and the Google  (NASDAQ: GOOG  ) Play store Thursday. The company sent out emails to Prime members and devoted nearly the entire Amazon.com homepage to promoting the service to support the launch. Here is the text of the email:

Three years ago we launched Prime Instant Video, adding unlimited streaming of thousands of movies and TV shows to the existing Prime benefit of Free Two-Day Shipping. It has turned out to be one of the most important things we've done for Amazon Prime members.

Today, we are doing it again for music — introducing Prime Music, the newest benefit of your membership. Prime members now get unlimited, ad-free access to over a million songs and hundreds of playlists for free.

The new app is an update of the company's cloud player, which gives customers digital access to the music they have purchased through the retailer. 

How Amazon Music works  

The service can be accessed via app or on the Amazon website. As of Thursday you can access the service via a giant homepage link at the bottom of a letter from CEO Jeff Bezos. After the app is installed -- either on a phone/tablet or a computer -- it works in a similar fashion to Spotify, albeit with a less intuitive interface.

Once a user logs into the app his or her library of songs downloads into Prime Music. This includes pretty much every song a user has purchased from the retailer (though there appear to be some exceptions as my library has most, but not all, music I have bought through the retailer). In addition to songs you already own it's possible to add what Amazon describes as over a million tracks for free. That's where things get a little confusing.

To listen to a song you need to add it to your library. You do that by searching for it. If you query by artist the results include both free songs and ones for sale. You can add either easily enough, which should lead to Amazon selling some more songs. 

In addition to adding free songs to your library -- which can be played whenever you like, just like music you own -- Amazon Music also offers curated playlists.

How does this compare to Spotify and Pandora?

There are other players in digital streaming music including Beats, which Apple just bought, but the reigning kings of the genre are Spotify and Pandora  (NYSE: P  ) . Both of these services have been gaining audience but increasing losses as they get bigger.

Both companies make money in two ways -- advertising on their free offerings and paid subscription revenue. Pandora uses a custom radio station model where users input artists they like and are delivered a selection of songs based on those choices. The service learns about users as they give songs a thumbs up or thumbs down. Listeners have no ability to pick specific songs. On the free version ads are played every few songs. Subscribing and paying $4.99 a month makes the ads go away.

Spotify's user experience for paid subscribers is closer to what Amazon Music is offering. The service's non-paying users can select an artist to listen to but not specific songs. Subscribers who pay $9.99 can create a song library -- much like you can on Amazon Music -- but with a much larger selection.

Pandora is essentially a radio station customized to your personal taste. Spotify is an alternative to owning music. Neither makes money now nor does either have a clear path to profitability. Part of the problem is that according to Spotify CEO Daniel Ek, his company pays 70% of its income back to the music industry. That creates razor thin margins, which makes making money difficult if not impossible even before Amazon got into the game.

Will it work for Amazon?

Amazon is not looking to make money from its music service. It has no ads and though it should increase song sales for the retailer, that is not likely the main goal. Amazon Music is -- much like the company's Prime Instant Video service -- an attempt to keep its millions of Amazon Prime subscribers happy. Prime customers got free two-day shipping and free access to a selection of movies, television shows, and original programs. Finding ways to make the service worthwhile for its customers is important to Amazon because Consumer Intelligence Research Partners estimated in 2013 that Prime members spend more than twice as much — $1,340 per year – than non-Prime members using Amazon.

The retailer will likely lose money on Amazon Music, which is why it built the service carefully with a decent, but limited selection of songs. Hard-core music fans won't be overly impressed (I searched for two of my favorites, The Replacements and Buffalo Tom, and there were only a handful of free choices), but casual fans and pop music lovers will likely be satisfied. 

Amazon Music is a nice addition to Prime that further justifies its $99 price tag. For many music listeners it won't be as good as Spotify or Pandora, but it may be good enough to avoid paying for one of those services. That's more bad news for two companies with very shaky business models that have proven unable to make money. 

Are you ready for this $14.4 trillion revolution?
Have you ever dreamed of traveling back in time and telling your younger self to invest in Apple? Or to load up on Amazon.com at its IPO, and then just keep holding? We haven't mastered time travel, but there is a way to get out ahead of the next big thing. The secret is to find a small-cap "pure-play" and then watch as the industry -- and your company -- enjoy those same explosive returns. Our team of equity analysts has identified one stock that's ready for stunning profits with the growth of a $14.4 TRILLION industry. You can't travel back in time, but you can set up your future. Click here for the whole story in our eye-opening report.


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2995432, ~/Articles/ArticleHandler.aspx, 7/28/2014 9:13:45 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement