Amazon Sweetens Prime Offerings as Growth Stalls

Amazon’s new offering undercuts music-streaming rivals

Spotify Technology SA

and

Apple Inc.

AAPL -0.19%

and signals the company’s growing appetite to find its next Prime hit as the service matures and while other subscription services grow. Prime is one of the great 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 that it sees strong growth among new users, especially among students. Mr. Ghani declined to provide exact figures.

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

The company’s stock initially fell more than 4% after its announcement Tuesday, in part because of investors’ concerns over losing the revenue that Amazon’s music service brought in and because of higher payments to record labels.

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

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

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

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

Walmart is estimated to have around 16 million members for its Walmart+ service, according to a survey by Morgan Stanley in May, and the company said this summer it had reached a deal to offer the Paramount+ streaming service to Walmart+ members. While the service continues to grow quickly, 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 park and merchandise promotions.

Apple

AAPL -0.19%

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

Subscription services have cost consumers more lately. 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 cost of Prime but did so in March, when it bumped the yearly cost to $139 from $119, four years after last raising the price.

Amazon has sought to find new features that could become part of the subscription’s main offerings alongside fast delivery and its Prime Video streaming platform. The company has spent billions to make delivery available for one day or less on millions of products, and it has also spent heavily on Prime Video with investments such as 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 watched by more than 25 million viewers globally on its first day and has driven more Prime sign-ups than any other Amazon original program.

Amazon regularly tests products and features that it might never keep long term. The company has shown this strategy with its devices lineup and in physical retail spaces.

Amazon Music may represent a growth area for Prime, but the company will have to improve demand even among its own customers. Just over 40% of Amazon consumers use Spotify’s free and paid services, compared with 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 allows unlimited access to one Echo or Fire TV device for $4.99 a month. Through the multiple 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 in the next year as the No. 2 music service by subscriptions, Midia analyst

Mark Mulligan

said.

Write to Sebastian Herrera at [email protected]