Why did Amazon enter the music streaming market?

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Jul. 8 2014, Updated 5:00 p.m. ET

Amazon announces music streaming service for Prime members

A few weeks ago, Amazon (AMZN) announced the music streaming service Prime Music. This service will be free for Amazon’s Prime members. Also, it won’t have advertisements. It will be available as an app both on Google (GOOGL) Android and Apple (AAPL) iOS operating system for mobile devices. It won’t be available for non-Prime members. As discussed in the previous part of the series, the music streaming market is growing at a fast rate compared to the digital track sales market, which is why Amazon has entered into this market. Pandora (P) is the leading player in this market, with about 77 million active listeners.

Amazon has a limited song collection in its catalog

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The issue with Amazon entering into the music streaming market is that it has a limited collection of tracks and albums, which it has licensed from record companies such as Warner Music Group and Sony Corp. (SNE). As the previous chart shows, Amazon will have about a million tracks in its catalog. Amazon’s number of tracks is quite low compared to 20 million tracks that Spotify offers.

Amazon’s strategy is to popularize its Prime service

A few months ago, Amazon hiked its Prime membership fees from $79 to $99 for the first time since its launch nine years ago. The main reasons for this price increase was the higher shipping costs to deliver products to customers and the exclusive subscriptions for some popular TV shows and movies. By providing new services such as Prime Music for free to Prime members, Amazon wants to attract more customers to buy its Prime subscription. Since the Prime program also comes with free two-day shipping, the increase in the number of Prime subscriptions would help the company in boosting its core business—which is the e-Commerce business.

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