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.
Amazon declined to comment.
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.
|This Story First Appeared in the March 15 Issue of Billboard /// Buy a Copy|
"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.
In the meantime, what the service will ultimately look like, if it ever gets off the ground, also is a question mark. Most sources say it will be a catalog streaming service, without new releases. Others say the retailer isn't asking for entire catalogs but rather specific titles or kinds of titles.
Says one indie-label executive who has conferred with others: "What they are asking for isn't consistent."