Another Day, Yet Another Music Service

Amazon's move to the market could hurt pure-play competitors

   

Google (NASDAQ:GOOG) is working on a music streaming service, as is Apple (NASDAQ:APPL). So it’s almost no wonder that Amazon (NASDAQ:AMZN) wants to get into the game as well.

According to The Verge, the company is talking to major music labels to license music libraries for a subscription service (although it looks like negotiations are in the early stages).

Of course, the music streaming business is highly competitive. Just a few of the players include Rdio, iHeartRadio, Spotify, Rhapsody and Pandora (NYSE:P).

But Amazon likes to enter highly competitive markets. Its main weapon is using its massive scale to offering dirt cheap prices. And with music streaming, Amazon can leverage its massive cloud storage infrastructure as well as its Cloud Player system.

For the most part, this type of service will just be yet another way to add some revenues for Amazon — as is the case with Google and Apple — since all the mega-players also have deep mobile assets. Amazon, for one, should get a nice lift from the Kindle platform considering that mobile has been the key driver for music streaming.

Plus, Google controls the wildly popular Android platform (which has over 500 million activations) and of course, Apple has iOS as well as iTunes (which has over 400 million customers).

In light of all this, it seems inevitable that pure-player music operators will have a tough time. It’s true that Spotify and Pandora have massive user bases and strong brands, but if they have to drop prices, it could wreck their businesses.

Keep in mind that Pandora, which saw a 111% spike in revenues in Q4, is still losing money. In fact, the company has been hemorrhaging for the past 13 years!

So investors, proceed with caution. While music streaming is a killer app for mobile, it will likely be just an add-on service for the mega-players. In other words, it will get tougher and tougher for companies like Pandora and Spotify to thrive.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of “How to Create the Next Facebook” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders.”Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2013/03/another-day-yet-another-music-service/.

©2014 InvestorPlace Media, LLC

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