Amazon sweetens prime deals like grow stalls

Amazon.com Inc.’s

The move to greatly expand its music catalog for Prime members aims to give the popular subscription program a boost, along with rivals like Walmart Inc.

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has achieved faster delivery times and added new features to subscriptions.

The tech giant revealed last week that it is expanding the free tier of its music streaming service, Amazon AMZN 1.88%

Music that includes tens of thousands more songs, commercial-free, for Prime subscribers.

Amazon’s new offering undercuts music streaming rivals Spotify Technology on

and Apple Inc.

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and signals the company’s growing appetite to find its next Prime hit as the service matures and as other subscription services grow. Prime is one of the big pillars of success at Amazon, company executives have said, and Amazon expects to keep it that way.

“What else can you sell customers that others can’t sell them?” That’s where their new frontier will be,” said Michael Levin, co-founder of research firm Consumer Intelligence Research Partners LLC, which studies Prime memberships.

Jamil Ghani, vice president of Amazon Prime, said the company is encouraged by high retention rates for the service and is seeing strong growth among new users, particularly among students. Mr. Ghani declined to give exact figures.

“We continue to invest in Prime. Music is just the latest example of continued investment,” said Mr. Ghani. “The No. 1 thing we heard from members was, ‘I want more music.’ So we figured out in the service, together with the publishers, how we could make that possible.”

The company’s stock initially fell more than 4% after its announcement on Tuesday, partly due to investor concerns about losing the revenue brought in by Amazon’s music service and due to higher payments to record labels.

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Most of Amazon’s more than 200 million Prime customers are drawn to it because of its free and fast shipping benefits. This convenience has been the foundation of Prime’s growth and allowed the company to invest in other Prime services. Retention has also been high. About 97% of current Prime customers say they are likely to renew, according to a recent study by Consumer Intelligence Research Partners.

Amazon has lost some of that advantage in recent years. Competitors from Walmart to small businesses have started their own express shipping services, making Prime’s delivery advantages less of a novelty. Annual growth in Prime subscriptions in the US, once nearly 20%, will slow to 2% in 2025, Insider Intelligence said.

Walmart is among the companies offering fast shipping services in competition with Amazon.


Photo:

Bing Guan/Bloomberg News

Mr. Ghani, vice president of Prime, said Amazon welcomes other choices for customers because it helps the company focus on what customers need and how it can add value to Prime.

“What is transformative and eye-opening today will be second nature tomorrow,” said Mr. Ghani. Amazon counters that, he said, by trying to have a consistent pipeline of new services for Prime.

Walmart is estimated to have about 16 million members for its Walmart+ service, according to a study by Morgan Stanley in May, and the company said this summer that it had struck a deal to offer the Paramount+ streaming service to Walmart+ members. While the service continues to grow rapidly, Walmart’s retention rate is slightly lower than Amazon’s, with about 93% of Walmart+ members saying they are likely to renew, Consumer Intelligence Research Partners said.

Walt Disney co.

plans to expand its Disney+ app to include theme parks and merchandise promotions. Apple AAPL -0.19%

in 2020, Apple launched One, which includes Apple Music, Apple TV+, Apple Arcade and 50 gigabytes of iCloud storage for $16.95 per month. An estimated five million people in the US subscribe to Apple One, according to data firm Antenna. Disney, meanwhile, has about 221 million subscribers across its streaming platforms, which also include ESPN+ and Hulu, according to the company.

WSJ’s Dalvin Brown explains why Amazon benefits from deliberately advertising exclusive devices, called Day 1 editions, that may never be available to the general public. Illustration: Elizabeth Smelov

Subscription services have cost consumers more recently. Apple recently raised the price of Apple Music to $10.99. Netflix Inc.

earlier this year raised its basic, ad-free plan to $9.99 a month, up from $8.99. Disney plans to raise its monthly subscription cost to $10.99 starting in December. Amazon, meanwhile, has been slow to raise the price of Prime, but did so in March when it bumped the annual cost to $139 from $119, four years after the last price hike.

Amazon has been looking to find new features that could become part of its core subscription offering, along with fast delivery and its Prime Video streaming platform. The company has spent billions making one-day or less delivery available on millions of products, and it’s also spent heavily on Prime Video, with investments like the National Football League’s “Thursday Night Football” and its recently released “Lord of the Rings.” ” series. Last week, Amazon said the show, which cost about $1 billion to make for the first season, was seen by more than 25 million viewers globally in its first day and has driven more Prime sign-ups than any other Amazon Original Program.

Amazon regularly tests products and features that it may never keep for the long term. The company has demonstrated this strategy with its unit lineup and in brick-and-mortar stores.

Amazon Music may represent a growth area for Prime, but the company will need to improve demand even among its own customers. Just over 40% of Amazon’s consumers use Spotify’s free and paid services, compared to about 25% who use Amazon Music’s services, according to Consumer Intelligence Research Partners.

In addition to the music that comes as part of Prime, Amazon offers its Amazon Music Unlimited subscription service for $9.99 a month or $8.99 for Prime members. It also has a single device plan that provides unlimited access to one Echo or Fire TV device for $4.99 per month. Through its many subscription plans, Amazon’s music subscriber base is one of the fastest-growing, according to data tracker Midia Research, and the company could overtake Apple Music over the next year as the No. 2 subscription music service, Midia analyst Mark Mulligan said.

Write to Sebastian Herrera at sebastian.herrera@wsj.com

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