Analyst: Amazon Music Service Lifts Value of Prime12 Jun, 2014 By: Chris Tribbey
Amazon’s new on-demand music streaming service increases the appeal of Amazon Prime, but isn’t a serious competitor with the likes of Pandora or Spotify, at least not yet, according to Michael Pachter, analyst with Wedbush Securities.
Announced June 12, Prime Music offers unlimited, ad-free music to Prime members, and has over a million songs available at launch. However, that’s nothing compared to Spotify’s 20 million-plus songs, and Prime Music doesn’t offer the music discovery benefits of Pandora, Pachter said.
“While we believe that the service increases the value of the Prime membership, and we expect Amazon to add to its music catalog as it has with Prime Instant Video over time, we do not think that the initial offering is sufficient to induce subscribers of these other services to switch,” he wrote in a note to investors.
Pachter estimates there are more than 25 million Prime members worldwide, with the main draw for the $99 annual service being Prime Instant Video, with video viewing among Prime members up three-fold year over year.
“Amazon management is quite ambitious, expanding into expensive digital media through its Kindle and Fire TV hardware and its Prime Instant video streaming, depressing the company's earnings power,” Pachter wrote. “Similarly, the expansion of Amazon Web Services has thus far been quite costly, although we think that AWS is at a tipping point and will generate significant leverage going forward.”
In a statement, Jeff Bezos, Amazon founder and CEO, said Prime Music will grow over time, and will offer personalized recommendations and a download option for offline listening.
“When Prime launched nine years ago, the program offered free two-day shipping on one million items,” he said. “Today, that selection has grown to over 20 million items. Prime Instant Video now offers unlimited streaming of more than 40,000 movies and TV episodes, up from 5,000 at launch three years ago.
“Today we’re introducing Prime Music — more than a million songs from some of music’s best artists, plus hundreds of expert-programmed Prime Playlists, all at no additional cost. Prime Music is the latest great addition for Prime members and we think they’re going to love it.”