Amazon strives to keep the beat

The challenge for Amazon is that it’s not yet standing out from the crowded field of rival streaming services. According to a random survey of 2,002 Americans conducted in January and February, Edison Research found that only 7 percent used Amazon’s music service. Pandora, a free service that includes advertising, led with 45 percent of the respondents saying they had used the service.

And the 800-pound gorilla of the digital-music business, Apple, is prepping a revamped version of its Beats streaming audio service, perhaps with its iTunes branding, that could come as soon as this month.

What’s more, Amazon’s biggest audience isn’t the hard-core music fan, the 18- to 34-year-old demographic that drives use on Pandora, iTunes and Spotify, said Tom Webster, Edison’s vice president of strategy and marketing. The biggest band of Amazon Prime Music users are 35 to 44 years old, Webster said. It’s not a demographic that sets music trends.

Retaining subscribers

And that makes sense. Prime Music customers generally come to the service because they are members of Amazon’s $99-a-year Prime service, which offers two-day shipping at no extra cost. Amazon has never disclosed details about those customers, but they are likely to skew older, with disposable income and homes to stash all the stuff they get from Amazon.

“The Prime member demographic is different than other streaming services,” Amazon’s Boom acknowledges.

That means Prime Music users hew more toward rock and country genres than they do electronic dance and urban hip-hop, Boom said. Prime Music subscribers also tend to listen to more full albums than users of some of the other services.

For now, Prime Music doesn’t need to be hip. The service isn’t yet trying to compete with Spotify and Pandora.

“It’s more about adding value to the Prime membership so they become even more loyal Prime members,” Boom said.

In addition to the music service and two-day shipping, Prime members get access to Amazon’s Netflix-like Prime Instant Video and the opportunity to borrow books from the Kindle Owner’s Lending Library. Those benefits have helped lure more than 40 million subscribers, by some analyst estimates, to the service.

They are subscribers that Amazon is keen to retain because they are among the company’s most loyal shoppers, frequently buying goods from Amazon’s retail site to justify the annual fee. Consumer Intelligence Research Partners, which tracks Prime data, estimates that Prime members spend 2.5 times as much on Amazon as non-Prime members.

That upends the existing business model for streaming music. Pandora hopes to make money through advertising, while Spotify wants to build a huge subscription business, even as it offers an ad-supported model. But Amazon can lose money on streaming music in the same way that Best Buy, years ago, could sell CDs at significant discounts. Music was simply a way to get customers through the doors to buy other items.

“That loss-leader concept is still very much alive on the Internet,” said Casey Rae, an adjunct professor at Georgetown University and chief executive of the Future of Music Coalition, an artist advocacy group.

For Amazon, Prime Music gives it an opportunity to come in contact with customers even more often than any of the other Prime benefits. People listen to music throughout the day, when they’re eating breakfast, commuting to work, as background noise in the office and even during their after-work jog. Those frequent “touches” help persuade Prime subscribers to renew membership, said James McQuivey, an analyst with Forrester Research.

“It’s a really great way to place some glue between you and your customers,” said McQuivey.

Remaining relevant

Prime Music, though, isn’t just a way to retain Prime members. Amazon is also trying to remain relevant as the music business continues to be roiled by digital disruption. Last year was the first year that the industry’s global digital revenue, at $6.9 billion, matched so-called physical format sales, CDs and vinyl albums, according to the International Federation of the Phonographic Industry.

As those sales continue to slow, Amazon needs to come up with a successful digital music business model to replace it.

That said, Prime Music won’t succeed unless the service appeals to music fans. And for now, McQuivey believes that the service feels a bit like an afterthought.

“In the patchwork quilt that is Amazon, this is a patch that hasn’t gotten a lot of attention.”