Alexa, Play Ads! -- With New Freemium Service, Amazon Looks Beyond Prime Users to Pull in Fresh Listeners

ISSUE 11 2019 - DO NOT REUSE
Courtesy of Amazon
Amazon Echo 

For Glassnote Records, the power of Amazon's new free music-streaming service will kick in when one of the 100 million people who own the company's voice-activated device says, "Alexa, play Jade Bird."

"If they like what they hear and it's already in their home: 'Let's upgrade for $9.99.' It's a win for us and the consumer and Amazon," says Dylan Lewis, head of digital for the indie-label home of Bird, Mumford & Sons, Chvrches and others. "It's a great way for them to position their service in front of people."

Launched April 18 for customers who own Amazon's Echo devices and certain other Alexa-powered speakers, Amazon's new free service is limited to certain playlists and artist radio stations. The idea is to borrow from Spotify's strategy and draw music fans into the Amazon-Alexa world for free so that later they'll pay for a subscription -- or perhaps one of the Everything Store's many other products. (The company's Prime service costs $119 per year, and subscribers can sign up for Amazon Music Unlimited for $7.99 per month, or $3.99 if they listen only on Echo devices.)

If successful, the ad-supported service could broaden the demographics of Amazon's music-streaming consumers, music-business sources say. Amazon's users skew toward rock and country, reflecting the tastes of its Echo owners and CD-download purchasers -- but the free tier could draw in a younger clientele, including the pop, hip-hop and Latin-music fans who populate Spotify and Apple Music. "Right now, they over-index in categories like country, rock and Christian," says a source familiar with Amazon's plans. "As this platform gains more traction, you'll probably find [Amazon is] more important in terms of pop and hip-hop."

Adds Lewis: "If you widen the audience, you widen the scope of genre consumption."

Some in the industry caution Amazon, in pivoting towards broader pop genres with a free service, to not forget its longtime strengths in country and rock. "They see where Apple and Spotify are doing so well in pop and hip-hop, but I honestly would encourage them to continue the course with country and rock, because they actually have a leg up," says Scott Borchetta, CEO of Big Machine Label Group, which broke Taylor Swift and represents Thomas Rhett and Florida Georgia Line. "At a certain point, you have to go where the love is and understand who is embracing your product. There's a huge upside for all streaming services in country and rock -- huge."

Although Amazon doesn't divulge user numbers, reports have estimated that its Unlimited service has 20 million subscribers, far fewer than Spotify's 96 million paid subscribers and Apple Music's 56 million. But the number of daily Alexa users doubled in 2018, according to Amazon, and the growth in voice-activated speaker consumption is likely to increase streaming subscriber numbers -- especially if a free tier draws in consumers the way Spotify's has.

"Voice, in particular, is going to be a very, very significant element of the future of music," says a major-label source. "They've taken a different approach that has been additive to the industry: it's not that they've been stealing customers, they've been bringing new customers into streaming music, and that's great for everybody."

Although Amazon's free service is available only in the United States, music-biz insiders predict it will eventually expand to growing music-streaming markets like China, India and Latin America. "As they start to globalize, they're addressing a much larger market opportunity," says the source familiar with Amazon's plans.

Outside the United States and the United Kingdom, however, Alexa lacks crucial functionality for shopping and local news. And some international music executives are skeptical the service could catch on, even with a free tier. "Would it make a difference or not? It's hard to tell," says Jeremie Varengo, a former Universal Music executive in Paris who is now music-business director for French TV service Trace. "When you're used to having Spotify or Apple Music, you don't want it to change, or have another device to play basically the same service."

To get licenses from labels, Amazon agreed to a system of royalty payouts based on numbers of streams, à la Spotify and Apple Music. "It's a taste," says Glassnote founder Daniel Glass of the free service. "We have a generation growing up of 10-month-olds to 5-year-olds who are using voice-activated speakers. It's only going to get more and more reflexive and more automatic -- those kids are going to be teenagers, and then they're going to go into cars."

This article originally appeared in the April 27 issue of Billboard.