The international music streaming market is firmly in the hands of technology companies, and it is telling that Spotify also defines itself as a technology company rather than a digital music distributor. Before Spotify entered the streaming market in 2008, the three major tech companies, Amazon, Google and Apple, competed primarily in the music download market. They overlooked the economic potential of streaming music and their reluctance to enter the market allowed Spotify to become the global leader. This third part of the series takes a closer look at the strategic mistakes made by Amazon, Google and Apple and traces their bumpy entry into the music streaming business.
The Music Streaming Economy – Part 3: Amazon, Google and Apple
Amazon.com
After the music download boom subsided, Amazon was the first of the GAFAM Big Five[1] to turn to music streaming. The first step in this direction was the launch of the beta version of Amazon MP3 in the US on 25 September 2007. For the first time, a legal a la carte download offering without DRM restrictions was made available, culminating in the superlative headline in the press release: “Amazon.com Launches Public Beta of Amazon MP3, a Digital Music Store Offering Customers Earth’s Biggest Selection of a la Carte DRM-Free MP3 Music Downloads.”[2] In addition to 20,000 independent labels, EMI and Universal had licenced more than 2 million songs without copy protection, which could be downloaded for US $0.99 per song or US $9.99 per month on virtually all devices commonly used at the time (PC, Mac, iPhone, iPod, BlackBerry, etc.).[3]
Unlike its main competitor Apple, which used the iTunes download store to promote its end devices (Mac, iPod and iPhone), Amazon’s focus from the outset was on streaming downloaded music from the cloud. It was this concept that convinced Warner Music Group,[4] and eventually Sony-BMG, to make their music catalogues available for Amazon MP3.[5] This marked the beginning of market expansion. By the end of 2008, Amazon MP3 was available in the UK and in 2009 in Germany and France, the other two major European music markets.[6] The music download offering was part of a strategy to make all digital media – photos, videos, books, documents, etc. – available in the cloud. To this end, Amazon Cloud Drive was launched at the end of March 2011. This was a file hosting service where music could be stored alongside other digital content. With the help of the Cloud Player, it was possible to upload up to 250 music files in MP3 format to the Cloud Drive and play them as a stream. Music purchased from Amazon MP3 could also be uploaded to the cloud drive without limit.[7]
This immediately provoked the major rights holders, who accused Amazon of trying to circumvent existing licensing obligations by storing music in the cloud. However, Amazon executives saw no reason to licence music that, in their view, was merely being uploaded from a device to the cloud for subsequent streaming.[8] After a year-long dispute with the major labels, Amazon finally gave in and settled the master rights with the majors.[9] One reason for the concession may have been that Amazon was working on an on-demand streaming service and did not want to jeopardise negotiations with rights holders, as media reports suggested in early 2013.[10]
Amazon took a middle position between the up-and-coming on-demand streaming providers such as Spotify and Deezer on the one hand and the download market leader Apple/iTunes on the other. Amazon wanted to keep its users happy by storing their music download collections in the cloud without taking the leap into on-demand music streaming. It was a classic case of technological lock-in. Valuable time was lost, however, and Spotify in particular was able to consolidate its market position and became the market leader. Amazon realised its strategic mistake very late and only entered the on-demand music streaming business in June 2014 with Prime Music.[11] However, Prime Music was bundled into the Amazon Prime offering and initially offered access to just 1 million songs for US $99 a year, which was very modest compared to Spotify, which had more than 30 million tracks in its catalogue at the time.[12]
With the market launch of the Amazon Echo smart speaker, which could be operated via the Alexa voice assistant, Amazon needed a killer app to boost sales. The obvious choice was to launch an independent on-demand streaming service that could compete with Spotify. On 12 October 2016, the time had finally come. Amazon Music Unlimited was launched. To penetrate the market quickly, Amazon set a competitive price of US $7.99 (annual subscription at US $79) and anyone who already owned an Echo speaker only had to pay US $3.99 per month.[13] This put an end to Amazon’s hybrid strategy of focusing on both downloading and streaming. Although the cloud music system was not immediately shut down, it was clear that the future belonged to on-demand streaming. The Cloud Player became the Amazon Music Player, and it was made clear to Amazon Music subscribers that the cloud service was a discontinued model by withdrawing the cheap and generous storage of Amazon Drive in the US as early as June 2017 and replacing it with more expensive subscription offerings.[14] Cloud computing for end users was gradually restricted and in July 2022, Amazon announced that it would cease operating Amazon Cloud Drive at the end of 2023 and that users would no longer have access to the data they had stored there.[15] The chapter of music downloads and music in the cloud was finally closed for Amazon and the internet retail giant focussed entirely on on-demand music streaming.
However, Amazon was not the only tech company to focus first on music downloads and then later on music streaming. At Google’s annual I/O developer conference in San Francisco on 10 May 2011, the company, which had unveiled its groundbreaking Android smartphone operating system the year before, announced a music service with the vacuous title of Music Beta. This was the beta version of a free music locker in the cloud, where users could upload up to 20,000 songs for streaming. It was Google’s answer to Amazon’s Cloud Drive, but without an attached music store because Google had not signed licensing deals with the major music rights holders. As a result, the new cloud music service was only available in the US and by invitation only.[16] Six months later, following licensing deals with Universal, Sony and EMI,[17] the beta version became Google Music and was officially launched with an MP3 download shop integrated into the Android Market (now Google Play) and a link to the Google+ social media network.[18] DIY musicians were able to upload and market their music themselves via an artist hub and superstars such as the Rolling Stones and Pearl Jam contributed free songs and exclusive albums for the platform launch.[19]
Despite huge marketing efforts, Google has been unable to increase usage among the 200 million Android users. The aim of the so-called “Phase 3” strategy was to make music a key revenue driver for Android applications.[20] This was not to be. However, as the Wall Street Journal reported in mid-April 2012, management was far from happy with Google Music’s performance and was looking to relaunch the service, which would include an on-demand streaming service.[21]
After Warner Music Group also licensed its music catalogue to the now renamed Google Play Music service,[22] the on-demand music streaming service All Access was unveiled at the I/O developer conference in May 2013 to expand the Google Play Music offering.[23] Shortly before this, the licence agreements with the three music majors, Warner, Sony and Universal, had been signed and sealed.[24] For US $9.99 a month, not only could the broad music catalogue be streamed, but the existing music collection could also be linked to it.[25]
This was primarily to challenge Spotify, which had also achieved a dominant position in on-demand music streaming in the US, not least with its music recommendation system and playlists. In June 2014, Google bought Songza for US $15 million,[26] a music curation service created in 2008 by Aza Raskin and Scott Robbin to bring order to the huge MP3 databases that users had amassed over time. Raskin and Robbin’s simple but brilliant idea was to create playlists for different daily activities, such as waking up, commuting, exercising or going to sleep.[27] In 2010, Songza was acquired by online music store Amie Street, which was funded by Amazon, which acquired Amie Street without Songza in August 2010.[28] However, the curation service managed to remain liquid with Scooter Braun (manager of Justin Bieber) and Troy Carter (manager of Lady Gaga) and was able to raise a total of US $6.7 million in venture capital.[29]
At the time of the Google takeover, around 50 music curators were working for Songza, who were responsible for compiling the playlists.[30] Spotify, on the other hand, has been using algorithms to curate music from the outset, and entered the field of AI-powered music recommendations with the purchase of The EchoNest in 2014. The tech giant Google, which integrated Songza into Google Play Music and All Access with the “Listen Now” feature in October 2014,[31] was lagging behind Spotify in terms of music recommendation technology.
Even with the move to on-demand streaming and the integration of music recommendations, Google was unable to catch up with Spotify. In addition, the pressure on its YouTube subsidiary to close the pay gap, which has been criticised by rights holders for years, has increased.[32] To counter the criticism, in November 2014 YouTube announced the premium music streaming service Music Key, which was to replace All Access and also be integrated into Google Play Music. Conversely, YouTube’s music videos would be available ad-free on Google Play Music.[33] A year later, Music Key was renamed YouTube Red, where all videos, not just music videos, could be watchend ad-free. The man responsible for this was YouTube CEO Robert Kyncl, who years later would become the CEO of Warner Music Group. In a long interview for The Verge, Kyncl outlined the plans for YouTube Red, which launched on 28 October 2015, first in the US and later internationally.[34] YouTube Red was supposed to be able to stream not just music but other digital content, particularly cinema films, to compete with Netflix. As we now know, this was not successful, and YouTube Red was split into two services in 2018 – YouTube Music for music streaming and YouTube Premium for video content.[35]
It also meant that Google’s two-brand strategy for its music offering had failed. YouTube Music was now positioned as a direct competitor to Spotify, while Google Play Music subscribers were redirected to YouTube Premium. This made it clear that Google Play Music was a discontinued model. In August 2020, Google communicated the exit scenario to its subscribers. Country by country, access to Google Play Music was cut and subscribers were redirected to YouTube Music. On 31 October 2020, tech magazine Wired published a lengthy obituary recalling the chequered history of Google Play Music, which had started as a music locker, evolved into a download portal and finally morphed into a music streaming service.[36] The article reflected all of Google’s bad decisions and bad investments in online music. The tech giant had failed to move to on-demand music streaming in time, and also missed out on key technological developments such as algorithm-based music recommendations. In December 2020, the plug was finally pulled on Google Play Music, leaving YouTube Music as the only music streaming service.[37]
Apple
The third tech company, Apple, had also relied on music downloads for too long and entered the music streaming market relatively late, giving Spotify a valuable competitive advantage. On 8 June 2015, the time had finally come. At Apple’s Worldwide Developers Conference (WWDC) in San Francisco, Apple CEO Tim Cook ended his keynote with “one more thing”, and the audience knew a big announcement was coming. At that moment, Beats Music founder Jimmy Iovine took the stage and, after a few anecdotes about Apple founder Steve Jobs, introduced Apple Music, a new streaming music service, with a promo video. In the video, Nine Inch Nails frontman Trent Reznor praised Apple’s new music service as “an ecosystem that we hope can provide the tools to grow, nurture, and sustain careers”. Apple/iTunes CEO Eddy Cue then demonstrated how the new app could be controlled using the Siri voice assistant. In addition to its extensive music catalogue, Apple Music also offered 24/7 radio station Beats One, hosted by former BBC star DJ Zane Lowe. Another feature – Connect – was introduced by Canadian rap superstar Drake, allowing artists to upload songs and fill social media feeds to interact with their fans. The show closed with a vocal performance by another superstar rapper, The Weeknd.[38]
The surprise was limited, however, as the launch of Apple Music had long been expected. Apple had bought Beats Electronics from its founders, rap superstar Dr Dre and Jimmy Iovine, for $3.2 billion in 2014 in the largest corporate acquisition in its history.[39] Apple’s desire was not so much for the iconic headphones with the distinctive white “B” logo on a red background as it was for the Beats Music streaming service. It was easier to buy an existing service than to painstakingly build a streaming portal.
In 2006, Dr Dre and music industry veteran Jimmy Iovine founded Beats Electronics, with the aim of launching high-quality Dr Dre-branded headphones in 2008. The company has continued to grow with financial backing from Taiwanese mobile phone manufacturer HTC, which acquired a 50.1 per cent stake in Beats for US $308 million in August 2010.[40] In early 2012, rumours began to circulate that Beats Electronics was eyeing up on-demand streaming service MOG. MOG was one of the pioneers of music streaming, founded in 2005 by David Hyman in Berkeley, California, as a social media music portal similar to MySpace. In early December 2009, MOG launched All Access, a music streaming portal with all the features of an on-demand streaming service. Thanks to licensing deals with the music majors and some indies, 10 million tracks were available from the start, which could be easily searched, streamed and shared with friends for US $5 a month.[41] MOG: All Access, as the service was now called, also used algorithms to suggest similar music, as Pandora does. MOG was thus not only the US competitor to Pandora’s ad-supported and therefore free service, but also to Spotify, which sold its premium subscription for US $9.99 per month. In March 2010, MOG expanded its service to include an all-you-can-download service,[42] and in July of that year launched an app for iPhone and Android devices,[43] shortly after Spotify announced its US launch.
MOG was also quick to recognise the potential of integrating its music service into digital car radios and smart TVs, signing deals with BMW, Samsung and LG in early 2011.[44] To better compete with Spotify, MOG also moved into ad-funded freemium streaming in 2011,[45] something Hyman had rejected in an interview with the Guardian when the streaming service launched in the UK.[46] By the end of 2011, MOG was the most downloaded monthly on-demand music app on Facebook[47] and had caught the attention of Beats executives, leading to its acquisition in February 2012 for around US $10 million.
The MOG: All Access brand was quickly replaced by Beats Music and its founder, David Hyman, unexpectedly left the company as CEO in November 2012.[48] He had handed over to Dr Dre and Jimmy Iovine a fully functional on-demand music streaming portal that, with around 160,000 active users per month, could easily compete with the likes of Spotify. Beats had acquired MOG for a bargain price, a move that would have legal consequences following Apple’s acquisition of Beats Electronics. Hyman accused Beats of firing him after just seven months to save a severance package in the form of dividend payments. As Beats was worth around US $3 billion when Apple acquired it, Hyman demanded an additional payment of US $20 million because he was contractually entitled to 1 per cent of the company’s value after one year of employment at Beats. He was deliberately fired before the end of the year to avoid the payment.[49]
For Apple, however, it was a done deal. The company, which had dominated the global music download market for years with iTunes, could now easily enter the on-demand music streaming market with MOG/Beats Music using a premium model. To keep the troublesome competition at bay, Apple had tried to persuade the majors to remove their music catalogues from the free offerings of Spotify, Amazon Music and YouTube, leading to a cartel investigation by the US Department of Justice, the Federal Trade Commission (FTC) and the EU Commission in May 2015, which ended without results.[50]
The case did, however, shed light on Apple’s methods of taking action against competitors in the music streaming market. The EU Commission’s second antitrust investigation did not end so easily in 2024. Apple was fined EUR 1.8 billion by European competition authorities for abusing its dominant position through its App Store to prevent the distribution of alternative music streaming apps. Apple was sued by its main Swedish competitor, Spotify, which complained that Apple was taking 15 to 30 per cent of the revenue from the sale of subscriptions to the Spotify app through its own payment platform, which users had to pay for. The EU Commission also found this practice to be a massive breach of antitrust rules and fined Apple billions of euros.[51]
However, it also shows that Apple has shifted its focus from music downloads to music streaming and wants to expand its position in the streaming market by any means necessary. It even sacrificed the iTunes Store, which was discontinued for Mac users in 2019 after 18 years of market dominance and replaced by Apple Music, Apple Podcasts, Apple TV and Apple Books for Mac users.[52] This marked the end of the era of music downloads dominated by Apple.
Summary
In summary, all three tech companies – Amazon, Google and Apple – had originally based their music business model on music downloads and did not initially respond to the challenge posed by on-demand music streaming services such as Spotify, MOG or rdio. Only when it became clear that streaming had become the next big thing in the digital music industry did the tech giants react, after a lot of time and money had been wasted. The fact that Apple paid US $3.2 billion for Beats Electronics and the related Beats Music US, while Beats had only paid around US $10 million for MOG two years earlier, speaks volumes. It was a similar story for Google and Amazon, which spent a lot of money on their hybrid download and streaming portals, only to realise that it would have been cheaper to switch to on-demand streaming
Endnotes
[1] GAFAM is the acronym of the five largest tech companies Google (Alphabet), Amazon, Facebook (Meta), Apple and Microsoft.
[2] Amazon press release, “Amazon.com Launches Public Beta of Amazon MP3, a Digital Music Store Offering Customers Earth’s Biggest Selection of a la Carte DRM-Free MP3 Music Downloads”, September 25, 2007, accessed: 2024-06-19.
[3] Ibid.
[4] New York Times, “Amazon to Sell Warner Music Minus Copy Protection”, December 28, 2007, accessed: 2024-06-19.
[5] New York Times, “Sony Drives Another Nail in the D.R.M. Coffin”, January 10, 2008, accessed: 2024-06-19.
[6] The Guardian, “Amazon to begin international sales of DRM-free MP3 music files”, January 27, 2008, accessed: 2024-06-19.
[7] Billboard, “Amazon Launches Cloud, Online Music Storage Service”, March 29, 2011, accessed: 2024-06-19.
[8] Billboard, “Amazon’s ‘Third-Rate,’ Unlicensed Cloud Service ‘Disappoints’ Labels”, March 29, 2011, accessed: 2024-06-19.
[9] Billboard, “Amazon in Process Of Clearing Music Rights For Cloud (Report)”, June 13, 2012, accessed: 2024-06-19.
[10] The Verge, “Amazon in talks with record labels about subscription music service”, March 19, 2013, accessed: 2024-06-19.
[11] The Guardian, “Amazon Prime Music streaming service launches in the US with 1m songs”, June 12, 2014, accessed: 2024-06-19.
[12] Ibid.
[13] The Verge, “Amazon’s full on-demand streaming music service launches today”, October 12, 2016, accessed: 2024-06-19.
[14] The Verge, “Amazon has killed off its unlimited data storage deal”, June 8, 2017, accessed: 2024-06-19.
[15] Amazon, “Frequently Asked Questions: Amazon Drive Deprecation”, n.d., accessed: 2024-06-19.
[16] The Guardian, “Google launches Music Beta and film player”, May 10, 2011, accessed: 2024-06-19.
[17] The Verge, “Google Music launching with EMI, Sony Music, and others; offering free, exclusive music”, November 16, 2011, accessed: 2024-06-19.
[18] The Verge, “Google Music gets Google+ integration”, November 16, 2011, accessed: 2024-06-19.
[19] The Washington Post, “Google opens Music service to everyone”, November 16, 2011, accessed: 2024-06-19.
[20] The Wall Street Journal, “Google’s Music Goals Fall Short, Say Analysts”, April 26, 2012, accessed: 2024-06-19.
[21] Ibid.
[22] Billboard, “Google Play Finally Adds Warner Music, Debuts Free Scan-and-Match Music Locker“, October 29, 2012, accessed: 2024-06-19.
[23] Billboard, “Google Launches ‘All Access’ Music Streaming Service [Updated]”, May 15, 2013, accessed: 2024-06-19.
[24] Billboard, “Google Signs Universal, Sony for On-Demand Music Service”, May 14, 2013, accessed: 2024-06-19.
[25] The Guardian, “Google Play Music All Access: search giant launches rival to Spotify”, May 16, 2013, accessed: 2024-06-19.
[26] Billboard, “Google Offered $15 Million to Buy Songza (Report)”, June 6, 2014, accessed: 2024-06-19.
[27] TechCrunch, “News Flash: Amie Street Swallowed Songza Six Months Ago”, April 9, 2009, accessed: 2024-06-19.
[28] TechCrunch, “Amazon Acquires Amie Street, But Not In A Good Way”, September 8, 2010, accessed: 2024-06-19.
[29] The Hollywood Reporter, “Google Offered $15 Million to Buy Music Playlist Site Songza (Report)”, June 6, 2014, accessed: 2024-06-19.
[30] Forbes, “The Songza Feature That Google Couldn’t Resist”, July 1, 2014, accessed: 2024-06-19.
[31] The Verge, “Google brings Songza’s best feature to Play Music”, October 21, 2014, accessed: 2024-06-19.
[32] This topic is discussed in more detail elsewhere in this book.
[33] Variety, “YouTube Launches ‘Music Key’ Subscription Service with More Than 30 Million Songs”, November 12, 2014, accessed: 2024-06-19.
[34] The Verge, “Red Dawn. An inside look at YouTube’s new ad-free subscription service”, October 21, 2015, accessed: 2024-06-19.
[35] The Verge, “Google announces YouTube Music and YouTube Premium”, May 17, 2018, accessed: 2024-06-19.
[36] Wired, “RIP Google Play Music, Gone Too Soon”, October 31, 2020, accessed: 2024-06-19.
[37] CNET, “Google Play Music is shutting down this month. Here’s how to transfer to YouTube Music”, December 3, 2020, accessed: 2024-06-19.
[38] The entire event can be watched in a YouTube video: “Apple – WWDC 2015”, June 16, 2015, accessed: 2024-06-24.
[39] Billboard, “Apple Buys Beats in $3 Billion Deal; Iovine, Dr. Dre to Join Tech Giant”, May 28, 2014, accessed: 2024-06-24.
[40] Forbes, “HTC Invests $300 Million In Headset Maker Beats Electronics”, August 11, 2011, accessed: 2024-06-24.
[41] TechCrunch, “MOG Launches All Access, Sets New Standard For Online Music”, December 2, 2009, accessed: 2024-06-24.
[42] Los Angeles Times, “MOG to Launch All-You-Can-Download Music Service”, March 15, 2010, accessed: 2024-06-24.
[43] Billboard, “Music Subscription Service MOG Unveils Mobile App”, July 20, 2010, accessed: 2024-06-24.
[44] New York Times, “Mog, the Digital Music Service, Takes Aim at the TV and the Car”, March 7, 2011, accessed: 2024-06-24.
[45] Billboard, “MOG to Add Free Tier to Subscription Service”, September 14, 2011, accessed: 2024-06-24.
[46] The Guardian, “MOG v Spotify: the battle begins”, March 5, 2010, accessed: 2024-06-24.
[47] Billboard, “MOG Grows Fastest Among Facebook’s On-Demand Music Apps”, November 4, 2011, accessed: 2024-06-24.
[48] Billboard, “David Hyman Steps Down as Mog CEO”, November 21, 2012, accessed: 2024-06-24.
[49] Billboard, “MOG Founder Sues Beats For More Than $20 Million (Report)”, May 16, 2014, accessed: 2024-06-24.
[50] The Verge, “Apple pushing music labels to kill free Spotify streaming ahead of Beats relaunch”, May 4, 2015, accessed: 2024-06-24.
[51] Music Business Worldwide, “Apple fined nearly $2bn in EU over ‘abusive’ app store rules for music streaming services – and it could potentially be on the hook for more damages”, March 4, 2024, accessed: 2024-06-24.
[52] Forbes, “How Apple Killed Off iTunes And What It Means”, June 3, 2019, accessed: 2024-06-24.
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