Online Computing Giant, Amazon launched Prime Music which provides its Prime members with unlimited, ad free access to more than a million songs at no additional cost to their Prime membership. Amazon Prime membership now includes free 2 day shipping, Prime Instant Video, Kindle Lending Library, and Prime Music, quite a lot of content for $99/year. Prime Music is likely to be featured on Amazon phones, which is expected to be unveiled few hours from now.
In terms of features and functionality , Amazon Prime Music looks more like Spotify than Pandora but Prime Music does not include Universal’s music catalog (largest label) and new releases only become available on Prime Music ~6 months after launch. We view Prime Music as a nice (but not that competitive for passionate music fans), incremental benefit for Prime Members that underscores Amazon’s strategy to increase the value proposition and adoption of Amazon Prime.
Pandora will spend ~$450mn on content acquisition in 2014, and we think that Amazon is likely spending well less than $100mn on Prime Music given lack of Universal’s participation, lack of new music and limited expected usage in the early years relative to Pandora.
Amazon Prime – Locking in Customer Loyalty
Amazon Prime has become the focal point of Amazon’s strategy as Amazon Prime creates customer lock-in and Prime members purchase with more frequency than non-Prime members. While Amazon disclosures remain poor, we estimate 2014 and 2015 total Prime members of 28mn and 36mn, which offers lots of runway for further penetration into Amazon’s 244mn customer base. We expect Amazon to continue to invest heavily in enhancing the value of Prime with additional member benefits over time. It will be interesting to see what Prime features are integrated into Amazon phones to try to entice consumers to switch, as Amazon is clearly late to the party.
Amazon is the best positioned company to capitalize on the secular growth of eCommerce, cloud computing, and mCommerce. We also think Amazon’s fulfillment footprint and Prime provide Amazon with significant advantages vs. online and multi-channel competitors.