Amazon Digital Music Head Steve Boom on the Company's Streaming Strategy

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  The building housing the headquarters of Amazon.com Inc. in Seattle, Washington. 

A year ago, Amazon was being watched very carefully. The company had released a widely panned, now-discontinued smartphone, causing a stock tumble despite having moved into producing innovative original programming like Transparent. A year later, and one glowing earnings release later, and Jeff Bezos is the third-richest person in the U.S., with its stock ballooning by $40 per share today (no word on whether Bezos will be giving a third of his away). Investors are, to say the least, bullish on the Seattle tech giant.

If content isn't king these days -- products, and the delivery of them are -- then consider a duke or baron which, if a big tech company, you need to have on your side. To that end, Amazon has continued to bolster is Prime service, a shipping discount subscription that incorporates video and music streaming channels within. Last month the company licensed a portion of Universal Music's catalog, and will be releasing exclusive music from Train. The key word in that sentence is “a portion” -- Amazon's music catalog isn't a 30-million-plus monster, but a focused, cherry-picked selection designed to serve Amazon's particular core demographic. (Don't call them older.)

With most of that in mind -- some of the previous hadn't occurred when this conversation took place -- Billboard spoke to Steve Boom, Amazon's vp of digital music, to try and wrap our heads around the company's unique strategy.

How have you found dealing with the industry so far... you’re in an area that’s very sensitive right now.

Yeah, well, I mean, I’m still doing it... so I obviously like it enough. To be honest with you, it's going through such incredible change that it’s really fascinating to work in this industry. First of all, I’ve been a huge music fan all my life so it’s great to work in an industry that you can be really passionate about but at the same time, gosh even for non-music fan, it would be pretty interesting right now just because there are, like you mentioned, things are very sensitive… it’s very dynamic. That makes your job a lot more interesting to have to respond to those changes as well as to try to influence the direction that things are headed, which is fun.

Everyday, basically by noon, you could anticipate five new questions coming up.

Pretty much. That’s not far off.

What’s been the most interesting and the most difficult question that’s come up since you took over?

We’ve had a long history in music obviously. You may or may not know, but selling music was the second thing Amazon ever did after selling books. Obviously digital music has been changing rapidly. So figuring out the right strategy to respond to customers changing the way they want to consume music, and translating that into something that works for Amazon, that’s been my single biggest focus since arriving here. Download businesses were still growing when I arrived [Jan. 2012], but not by much. The download segment really peaked in 2012, and started to decline in 2013. So we knew that sitting still -- which is not something Amazon likes to do or ever does -- was not the strategy, so figuring out how to do that, to transform with our customers and move from being a retailer into being a retailer plus a streaming and digital music service provider, was the single biggest thing that we’ve accomplished over the last few years.

We stand as the biggest retailer of physical music. We stand as the number two retailer of digital music. We stand easily as one of the top -- there aren’t easy ways to rank them right now -- premium streaming providers. That’s been our focus, and it leaves us in quite a unique position. If I’m an artist and I want to reach fans of my music, and I recognize that people like to interact with music in different ways, we’re really the only place that touches all of the different formats. So that’s a long answer to your short questions.

You said that physical sales of music are increasing?

Yes. Our physical business just continues to outperform the overall market year after year. It’s not like it’s growing gangbusters, but the segment declining year after year while Amazon has not been.

You've taken a unique approach to streaming. Most services or companies, if they have less than 30 million songs, they don’t even bother and you guys have really whittled that down and kind of focused on what seems like focuses on an older demographic. How did you arrive at that approach?

What we wanted to do, obviously Prime is a huge priority for the company. The company had been successful in rolling out Prime video service in early 2011. We knew that adding more and more value to the Prime membership was a good thing -- it creates a symbiotic relationship, where the service enhances the value of Prime and Prime can enhance the value of the service. Prime is a premium program, so we wanted to make sure we talked to customers about their biggest pain points in consuming digital music. The things we heard were really about the functionality; no advertising, full access on your mobile device, being able to take it offline on your mobile phone, and when you’re listening to stations, having the ability to have unlimited skips and rewind. Those were the main pain points we were hearing, we never heard anyone complaining about 'Oh I definitely need 30 million tracks.' What we heard is: 'I want access to a great catalogue of music. I want you to make it easy for me to find that music.' So we implemented a bunch of things to help people discover the music that we have.

It’s not targeting an older demographic. I don’t agree with that premise. It’s not necessarily targeting the customer that needs every new release right now or needs access to everything in the world. It is targeting a different customer segment. If you look at the way our service is being used and the type of music people are listening to, it has a different audience then Spotify or Beats have had. I don’t know about Apple Music today, but that Beats historically had. It is a different audience. It’s not a hip-hop or electronic focus. It’s more pop and rock and country-focused.

I’m wondering if going after these kind of smaller catalogue chunks, rather than the whole kit and caboodle... how does that affect your negotiations and relationships with the labels?

That’s a really hard question to answer. This will sound like a standard answer off the shelf, but it's true. Every negotiation is different. Every label has different issues they’re focused on. But I think they understood that this is a different service, that this is targeting different audiences than those services are today. It’s monetizing different types of user behavior than you might monetize through a ten-dollar-a-month service.

Because of the originals, any concerns about pulling ears away from the majors or indies content?

You’d have to ask them. We certainly haven’t heard anything. The stuff we’re doing, we’re delivering really interesting content to the Prime members. [Original music] is on a pretty small scale today. I think we’ve announced a handful of projects, and we’ve chosen areas that really speak to the Amazon customer. Things like holiday music, you can imagine how important the fourth quarter is to a retailer such as Amazon. We have a lot of traffic coming to Amazon during the Holiday season. Again, Prime is -- really the sweet spot of Amazon Prime is young families, in terms of our membership base. If you see the consumption charts, children’s music is still small in our service but it’s dramatically larger as a share of our service than if you look at the industry average. The industry average is barely a blip. It’s still well under five percent of our service, but it’s a lot, lot bigger.

So the originals programming now, I’m not super familiar with where this is heading, can you talk about this play? YouTube is moving into original programming, Tidal has wrapped up some exclusive with the artists that are kind of co-owners with it. Everyone is testing the waters.

I don’t know what they’re all doing in terms of what the rationale is, but we’re in a streaming world where you want people to come back to your service frequently; to use your service and make it a daily habit. And it’s important to do things maybe unique to your customer base. I’m sure that all the different services demographics and interests of their customers all look a little bit different and I think it’s only natural that why we chose the themes we chose, I think it’s only natural for a service to say look, we need to do some things that make our service even more different than the other guys’ services so that customers come back to the service more frequently.

There’s lots of things you can do. One of those things is have unique content. So far it’s all been relatively small scale across the different services, but we started last year in the holiday season. We did a playlist called All is Bright, it had 43 songs on it. It was a huge success. We weren’t doing anything other than say "Hey we’ve got this brand new streaming service, let’s have fun with this, let’s get a bunch of artists and give them an opportunity.' Most of those artists were relatively lesser-known artists that we were giving a chance.

As it came into 2015, we’re like 'If something works, we should try it again.' So you wouldn’t be surprised to know that we’re gonna do some things in the holiday season again, but we’re also doing things earlier. The first thing we did was in July, we released a playlist of acoustic music. This one was a mix of pretty well known artists like Train, 5 For Fighting, Michelle Branch, but a bunch of lesser-known artists that we think would love the opportunity to get in front of Prime members in this way. In many cases we give them the freedom to really record something they’ve been wanting to record.

So where is it gonna go in the next few years? It’s gonna evolve and we’re gonna do more and more of this stuff but I can’t even begin to tell you, five years from now, what this will look like. And I can’t tell you what the other services are going to do; each of them has their own focus and rationale.

Can you supply any numbers?

This is where we’re really annoying to work with.

Some of them are more forthcoming. Here’s the thing that we say publicly. We said that Prime has tens of millions of members worldwide. Prime Music has several million people using it on a monthly basis, and it’s been growing consistently since we launched. I can tell you that our hours are growing faster than our users -- a good sign, because it means people are getting more and more engaged with our service. I know, I’m not giving you any specifics.

As we keep improving the selection of content, as we keep improving the quality of customer experience in our apps and on the web... all the metrics go up and to the right.

If you could step away from Amazon for a moment -- what do you see when you look at the digital music landscape?

The move to streaming is immense... In an always connected world, it’s the way that people want to interact with music. And it’s just gonna keep growing. I think you’re gonna see changes in the landscape, as artists and labels really understand how best to market in that environment.

I think that at the same time that streaming is growing, it’s amazing to watch the antithesis of streaming grow at such a rapid rate -- by which I mean vinyl, of course. That’s just an incredible phenomenon to witness these two things happen in parallel.

It sort of highlights the bipolarity of our relationship with technology.

Yeah, it’s incredible. It’s just incredible. Vinyl’s growth is limited by capacity, not by demand. It’s a supply problem, not a demand problem.

What else do I see at a high level... I think over time you’ll see fewer players. What’s emerged, from our perspective -- I’m putting my Amazon hat back on a little bit here -- there’s three players who have clearly emerged this year as the leaders in premium streaming in the US; Spotify, Apple and us. And between Spotify and us, I think we know for sure, with respect to the other guys, they’re gonna be a major player no matter what, given their scale.