Why Amazon VP Steve Boom just made the entire music catalog free with Prime, on this week’s DecoderPod
Our idea was, “What if we build a music service for everybody else, not the people that are willing to part with $120 a year?” That was the idea behind Prime Music when it came out. It was like, “Let’s give people a premium music service that has a limited catalog of music.” A lot of these people didn’t need the full catalog back in 2012. I point out that at the time, Pandora had a catalog of about 1 million songs. That’s it. And it was a very successful service.
I also think you have to look at how people listen to music compared to how they consume video. People want to make playlists, and the content is much shorter. You engage with it in very different ways that I think would make having these islands of catalogs very different. There was a moment when one of the services tried to go big into exclusives. Ultimately, it wasn’t very friendly to consumers, and frankly, the industry didn’t quite like it either. That ended pretty quickly.
Obviously, I’m not privy to the types of deals that the artists have with the labels and the publishers, and we leave that to that side as well. I think that’s actually one of the interesting things about Amazon that sets us apart from the other services. As we look at what a streaming service is going forward, I tell my team that we have been in a streaming service 1.
How do I make decisions? You have probably heard this answer before from other Amazon executives. We have a decision-making framework: we think of decisions as one-way door or two-way door decisions. Once you take one-way doors, they’re really hard to unwind; it’s hard to open that door and walk back through. Two-way doors are easy to walk back through, and we really encourage people to take them quickly. “Be willing to fail because you can unwind it.
At the end of the day, you want to use a music service because it feels like it’s part of music culture. We have to make our service feel like it understands, is aware of, contributes to, and reflects music culture. By doing that, we think people will want to use the service. The people who are focused on subscriber acquisition are not like, “Oh, the Taylor Swift release is coming out so we can do X, Y, or Z,” because obviously the release is going to be available on all services.
Amazon is actually really famous for that planning process. There are entire books about it that people can read.I feel like Amazon executives are the best guests to have onbecause it maps onto how Amazon operates in many ways. That planning process is really rigorous. You have to lay it out, write memos, et cetera. Amazon has different kinds of decisions it could make. The music industry is fickle, unpredictable, and full of weirdo scandals.
I think the turning point for us was probably in 2015, when we went to talk to the major labels about licensing Amazon Music Unlimited. We talked about Prime Music earlier, which is our service that comes bundled with Prime. You can then upgrade to the full on-demand catalog with 100 million songs, which is called Amazon Music Unlimited.
No, not five. They are typically two- to three-year deals. You can figure it out from reading Spotify’s public filings. You can see when they’re in re-negotiations and those are pretty common across the industry. Inside of that is a series of competitive content licensing negotiations that occur every two to three years amongst several huge players on both sides. There are only so many major labels, and it feels like unless someone stops them, they will just consolidate into one major label by the end of it all — because they keep doing it. There are only so many big tech companies. I doubt the tech companies are going to consolidate, but you never know.
“It’s great to see vinyl growing like it is. I saw Taylor Swift’s numbers. I think she sold half a million or more vinyl copies in the first week. It’s incredible.“ One of the things you did roll out in recorded music was higher quality tiers. I think you have HD and surround audio, like 360 audio. Does that stuff play? I am a nerd for that stuff. I’ll take the lossless streaming all day, all night. My experience in this industry, and with our audience, is that convenience trumps quality every time. So asking people to pay for higher quality is always just a slog.. Almost right before the pandemic, if I recall.
Then, we added spatial audio. Dolby Atmos, Sony 360 Reality Audio. Interestingly, I think we’re finding that people are gravitating towards that content even more than the higher quality bit rates, because you can really hear the difference. We’ve done it. You just use our mobile app. You don’t need special headphones or anything.There are some mixes that are less good than others. I could say the same about studio albums.Some studio mixes aren’t awesome.
Going back to the contract negotiation, in two or three years you are going to go to the labels and say, “Right now, you’re charging us more money to stream lossless audio, and you’re charging us more money to stream in spatial audio. We want to bundle that into the base price and take that revenue stream away.” It’s a gate. They have a revenue gate around higher-quality files, differently mastered files, or differently mixed files.
Let me think about that for a second. Of course, the labels are not going to tell us what the terms are with other providers, nor do we tell one label what the terms are with the other label. We’re all big companies. The major labels, the music streaming services, we’re all big companies and these are arm’s-length negotiations. We all have different asks and our services aren’t the same.
We actually went, “We have a great idea, this device is begging for a full catalog of music.” When we launched the Echo device we only had Prime Music at the time, which by design was a limited catalog; it had 2 million songs back in the day. There’s no screen on an Echo. If you have a phone or any kind of visual interface, a streaming service can really guide you to the music. It gets to decide how you browse and search for music because it is controlling the structure of the interface.
By the way, it’s priced at a level. If you go back to the peak of the music industry pre-streaming, 50 percent of US consumers bought music and 50 percent listened to it but never paid for any music. The average spend of those who bought music was $50 a year. So when we came to the labels with this idea of a perfectly designed mid-tier service at $60 a year, it was actually more revenue than they were making off the average CD buyer back in the day. It’s been hugely successful.
When you say, “Okay, we’re going to expand the service that is included with Prime to be the full catalog, to be ad-free, and to have shuffle,” is that based on the same thing? How does that work? Let’s talk about podcasts. You’re bundling in some Wondery podcasts, and you’re taking the ads out. We’re on a podcast. I am deeply familiar with how the podcast business works, as you can imagine.Taking the ads out is a big deal. You’re now saying, “Okay, we’re going to get fixed revenue out of this catalog of audio that you own,” as opposed to the variable revenue of, “Okay, there is an audience here. We’re going to bring in demand for this catalog and set rates on it against these audiences.
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