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Amazon wants to do to music what it did to book prices

By offering the lowest prices on books, Amazon introduced the e-commerce habit to millions of Americans, while turning in more than a decade of annual losses as it built its user base of Amazon Prime subscribers.
Jeff Bezos, director ejecutivo de Amazon.com (Imagen por Michael Reynolds/EPA)

A hard but simple truth about the on-demand music streaming business is that none of the companies doing it make any money at it — from Spotify and Apple all the way down to Tidal, the troubled startup backed by stars like Jay-Z.

Earlier this summer, Reuters reported that Amazon was planning on making a move into music streaming, with its own subscription service. While it was expected that Amazon would price its music streaming plan at the now-industry standard $10 a month rate, an article from Recode on Tuesday is a bit of a curveball: The company has reportedly talked about offering a $5 a month service that would only work on the Amazon Echo voice-assisted speaker.

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If this sounds familiar, that's because Amazon did this before -- with books. By offering the lowest prices on books, Amazon introduced the e-commerce habit to millions of Americans, while turning in more than a decade of annual losses as it built up the shipping infrastructure and user base of Amazon Prime subscribers who pay $99 a year for free shipping.

Amazon never made a dime on books and at $5 a month, it won't make any money on music streaming. Rather, they'll get more Amazon Echo devices into homes and that's a play on extending the Prime ecosystem of products and services into the connected household plugged into a variety of other Amazon services and products ecosystem of Prime, Kindles and Fire TVs.

One problem with this plan: the record labels have seen this movie before and they know how it ends. They exchanged music physical ownership (CDs) for digital ownership (downloads) for music-as-a-service (Spotify) and made less money every time. This is why the labels blocked Apple Music from launching a sub-$10 streaming plan. The fear is that establishing a price point below $10 for ad-free, on-demand music streaming would further eat away at their profits.

And yet, what could make Amazon's service a reality is if the labels see the $5 Echo subscriber not as replacing a $10 Spotify subscriber, but as an entirely new audience that has never paid for music or at least hasn't in a decade. Music industry analyst Mike Vorhaus says he is "sure" that this is the argument Amazon is making to the music industry people.

"I'm sure the labels are willing to see experimentation," Vorhaus said. "If they can get any amount of money from it, great — though I don't think they want this to become the new standard price for music services."

We asked Amazon if this, indeed, is their argument and they declined to comment.

So while Amazon might not make much money from music streaming, convincing the labels to get an Echo-only service off the ground could get more people inside the Amazon Prime network. For the labels, $5 a month is better than zero dollars, and that could grow the pie of people who actually pay for music again, the kind of thing that passes for a "win" in today's music industry.