Amazon turns up the heat on tunes

Music streaming its latest venture

Amazon.com Inc. introduced an advertising-free music streaming service Thursday with more than 1 million songs, ramping up competition against Apple Inc., Spotify Ltd. and Pandora Media Inc.

Prime Music is available to subscribers of Amazon's $99-a-year unlimited-shipping Prime program, the company said in a statement. The service doesn't offer many new releases or tracks from the world's largest record company but instead features hundreds of playlists such as "Pop to Make You Feel Better" and "50 Great Epic Classic Rock Songs."

The move reflects a recognition by Amazon that the online music industry is shifting to streaming -- where a customer pays for access to songs instead of owning them -- as digital downloads have declined. Apple last month agreed to buy Beats Electronics LLC for $3 billion, partly because of the Beats Music service that gives the iPhone-maker a foothold in Internet-based streaming.

Amazon is trying to add to the value of its Prime membership, which in addition to offering unlimited shipping has been expanding access to an increasing library of music and video content for subscribers.

"What started as a shipping service has evolved into a membership service," said Steve Boom, Amazon's vice president of digital music. "We think we can bring great value to our Prime members and in doing so we can create deeper and longer-lasting relationships with our Prime membership."

Yet Prime Music has run into hurdles landing a deal with Universal Music Group, the world's largest music company, whose artists include Kanye West and Lady Gaga, according to people familiar with the plans. Neither appeared on the list of Prime Music artists on the website Thursday.

Amazon offered Universal Music and other labels a lump sum in exchange for access to a selection of their catalogs, an amount that Universal Music considered too low, said two people familiar with the matter, who asked not to be identified because the discussions are private.

Boom said that negotiations with Universal Music are still underway and that the parties will "just keep talking and hopefully come to an agreement in the future."

Amazon Chief Executive Officer Jeff Bezos called the service "the latest great addition for Prime members."

Universal Music is now the latest media company embroiled with Amazon in a money dispute. The Seattle-based company is also facing resistance from book publisher Hachette Book Group and Time Warner Inc.'s movie studio, Warner Bros., which both have held out for better terms from the world's biggest online retailer over their cut of sales.

Unlike Spotify and Apple's Beats Music, Amazon's music streaming won't feature the latest releases and will focus on material that has been published at least several months ago, said the people familiar with the matter. Those tracks still occupy spots at the top of the charts, Boom said. The company is also counting on playlists and a recommendation algorithm, similar to Amazon's main shopping website, to steer people to music they'll enjoy, he said.

"We're not promising our customers out of the gate all of the world's music," Boom said. "We're promising them a really great music catalog."

Amazon's lump-sum offers to music companies differ from other streaming services that pay record companies based on how many times a track is played, one person said.

Amazon's contract disputes follow investor pressure on the company to become more profitable. The company makes less than 1 cent in profit for every dollar in revenue it generates, as Bezos spends on fulfillment centers, grocery delivery and new products such as a smartphone it's expected to unveil at an event in Seattle next week. Amazon, whose stock is down about 17 percent this year, has argued the investments will pay off in the years ahead.

To create its new music service, Amazon is leaning on music-industry veterans it has hired in recent years. Michael Paull, who once ran Sony Music's digital music business, and Drew Denbo, who did business development for the music services MOG and Rhapsody, have been helping to spearhead Amazon's effort, said people familiar with the work. Boom joined Amazon in 2012 after working at the Silicon Valley startup Loopt Inc. and as an adviser to mobile-video service Vuclip Inc.

Business on 06/13/2014

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