Will the last dot-com juggernaut to enter the music subscription niche plug in the amp?
Amazon.com (AMZN +1.43%) is apparently the latest player angling to cash in on the success that Pandora (P +0.00%) and Spotify are having in serving up streaming tunes to consumers hungry for ear candy. Multiple sources are telling The Verge that the online retailer is in the early stages of talking to the major record labels, paving the way for an on-demand service that would be similar to Spotify's platform that has attracted 6 million premium customers worldwide.
"Premium" is the key. Spotify has 24 million active listeners, but the real model here is getting them to pay up. Pandora has struggled badly on that front. It hasn't had a problem growing its active user base to 67.7 million as of last month, but just 13% of its revenue is coming from subscriptions.
Sirius XM Radio (SIRI +0.00%), on the other end, doesn't offer a free ride on its fledgling streaming platform. Even Sirius and XM subscribers with receiver-based accounts have to shell out $3.50 a month for access to Sirius XM's growing online features.
It remains to be seen if Amazon's model will be a true premium offering. Amazon has other ways to monetize an on-demand platform. As a leading seller of music downloads, the Seattle-based e-tailer can try to make it back on the sale of individual tracks and albums. A streaming smorgasbord can also be packaged into the popular $79-a-year Amazon Prime loyalty shopping program, as the dot-com darling has done with monthly Kindle rentals and unlimited video streams.
Amazon can also make a streaming offering a cornerstone feature of Kindle Fire, giving the tablet a true differentiator in a niche that's starting to get crowded.
The only thing we know is that Amazon won't be alone. Reports have surfaced that Google (GOOG +1.37%) will be rolling out a pair of streaming services through YouTube and Google Play. Apple (AAPL +1.12%) has been reportedly in negotiations with the major labels since last year, and a recent New York Post update suggests that Apple is trying to secure lower royalty rates than Pandora or Spotify before moving forward with its offering.
The market's going to get crowded. A shakeout will come, but the online giants can't afford to miss out on the trend. Amazon's tendency to absorb short-term pain for long-term gain -- as it has done in marking down its Kindle products so aggressively -- will serve it well.
