Amazon has come to dominate and dictate terms to the book publishing industry. Now
a proposed move into the music streaming business has some labels fearing the same
could happen to them.At issue are plans to add music to the Amazon Prime service,
which provides subscribers with free instant access to some titles. The Web retailer is
trying to secure music on the cheap, and several executives Billboard spoke with are
shocked and disappointed by the terms.
Sources say Amazon is offering labels a take-it-or-leave-it fixed pool of revenue to license
their songs. That fixed amount will be paid out pro rata based on the number of plays for
the labels' songs. The indies are collectively being offered just $5 million for a year -- an
amount insiders describe as derisory. The terms for major labels are slightly better but the
fixed pool is also very small at initially just $25 million, according to sources. The new music
streaming offering included with Prime will be relatively limited in its catalog size compared
with services like Spotify and Beats. Most of the songs picked would be older tunes rather
than current hits.
One reason Amazon can make this demand is the power it has in the music business as
one of the largest retailers of CDs and downloads. Amazon has used its immense market
power to negotiate tough deals in the recent past, as seen with book publishers. So labels
are afraid of setting a dangerous precedent of licensing a limited amount of music to its
streaming service while receiving a tiny portion of the estimated $800 million in additional
revenue the retailer would receive, and, in the process, hurting rivals like Spotify that paid
out $500 million to labels in 2013.
Sources say the streaming service would be part of an upgrade that will allow Amazon to
raise the price of Prime to between $100 and $120 a year. Labels are concerned Amazon,
like other big tech companies such as Apple and YouTube, will use music to retain and win
customers but not share the value created. "They're going to get another $20 or $40 for each
Prime subscriber and are going to chip off $5 million to pay the indies, regardless of the
number of subscribers and usage," says an indie-label owner. "That's insane." "Why would
we do such a deal," asks one major-label executive who's worried that Amazon's service, if
successful, could cannibalize revenue from streaming services with direct deals that pay much
more than the Seattle-based merchant's initial offer terms. But another major-label executive
says Amazon appears willing to negotiate a higher annual payment than originally proposed.