Why Amazon VP Steve Boom just made the entire music catalog free with Prime

Steve Boom is the VP of Amazon Music, and he has a great name for the music business. He’s on the show because Amazon just announced that it is upgrading the music service that Prime members get as part of their subscription. Starting today, one of the benefits for Amazon Prime members is that you now get access to the entire Amazon Music catalog, about 100 million songs, to play in shuffle mode. That service used to only contain 2 million songs. They’re also removing ads from a large selection of podcasts including the entire Wondery catalog if you’re a Prime member.

I love covering the music industry because it’s famously opaque. I wanted to ask Steve: what’s it like to negotiate with the record labels for a service like this? What can streaming services do to make artists more money? And where do podcasts fit into the overall strategy? Amazon and Spotify both spend a lot of money buying podcast studios. Is it paying off?

And of course, I asked Steve if spatial audio for music is just nonsense because I think it pretty much is. This is a fun one: Steve Boom, VP of Amazon Music. Here we go.

The following transcript has been lightly edited for clarity.

Steve Boom, you are the VP of Amazon Music. Welcome to Decoder.

Thanks for having me.

I am really excited to talk to you today. We should start with the news you have. You’re expanding the catalog of songs for Amazon Prime members. Tell us about that.

We’re updating the benefits that Prime members get in music and audio. Historically, Prime Music has been a catalog of 2 million songs, and the biggest feedback we have gotten over the years is, “We love that this service comes with Prime, but we really want access to more music.” So as of today, we’re announcing that we are expanding the catalog to 100 million songs. It’s basically a full catalog service, ad-free, with playable and shuffle mode. If you think about it, it’s really the best music service you can get without having to pay $10 a month or more. 

We’re also adding a bunch of podcast benefits into it. For example, we are going to have the largest catalog of top ad-free podcasts. When we talk to consumers, what do they want? The biggest thing they don’t like about podcasts is all the ads, not surprisingly. So we focused on building a great catalog of stuff that people like to listen to and making that ad-free. Some of it is going to come from Wondery — which is a podcast studio that we own — but a lot of it is going to be from big brands that people are listening to outside of Wondery. We’re excited about that.

There is a lot to unpack there. It’s exciting news. If you’re a Prime member, you are going to get a bunch more free stuff.

Yes. All good.

Every piece of that is a structural question about the music industry and the audio industry, about where audiences are going and what audience Amazon has versus some of your competitors. I want to get into all of it, because under the surface, there are a lot of really important structural conversations about the music industry. 

Let’s start at the beginning with the Decoder questions. You are one of the progenitors of Amazon Music. You made this whole thing happen. You have been in this industry for a very long time. How does Amazon Music work? How is it structured? Where did it come from?

I, along with a few other people, I guess could be called the founders of Amazon Music. I joined the company almost 11 years ago. When I started, Amazon was selling MP3 downloads. That was the business back in early 2012. So it is almost hard now, 10 years later, to remember that streaming was not particularly, pardon the pun, mainstream at the time. We knew we needed to get into streaming. It was clear from our customers that the download market had peaked. Literally the month I arrived at Amazon was the month that it peaked globally.

We did what we do at Amazon. We wrote a white paper and went to Jeff [Bezos - then CEO] sometime in 2013. I didn’t come from the music industry at that time so I was brand-new to it the day I started at Amazon. It’s not surprising it took a minute or two to figure out the lay of the land. It’s a pretty complicated industry with all the licensing specifics and all that. We came up with the idea back in 2013 and said, “Streaming is new. What if we did something different than everyone else is doing?” Most of those companies don’t exist anymore. There were some names like Rdio, MOG, and some others you might remember.

RIP Rdio. Rdio was great.

Great product, right?

For the listeners, Steve just made a face.

It was a great product, no issues there. The music superhighway is littered with startups that tried to do $10 a month services. We looked at the data of how people were purchasing music, and we obviously had the benefit of being a retailer. Not only do we have digital downloads, but we were and continue to be the largest retailer of physical music in the world. We could see what was happening.

If you looked at the bottom 85 to 88 percent of customers, just in volume, they were spending about $15 a year digitally and maybe $30 a year physically. That means they were buying a couple CDs physically or a few tracks in an album digitally. We thought to ourselves, “Wow, so it’s really only the top 10 to 15 percent of customers who are spending more.” I mean, some of them were spending a lot more, hundreds or even thousands of dollars a year.

I am 100 percent one of those people.

Yeah, me too. The thing is, we are now trying to get people to spend $120 a year. At the time — again, this was 2012, 2013 — that was actually asking a lot from people. Subscriptions were generally still new. Amazon Prime was quite small, so was Netflix. Even Spotify had barely just launched in the United States. It’s hard to imagine that time, but that is where we were. 

Our idea was, “What if we build a music service for everybody else, not the people that are willing to part with $120 a year?” That was the idea behind Prime Music when it came out. It was like, “Let’s give people a premium music service that has a limited catalog of music.” A lot of these people didn’t need the full catalog back in 2012. I point out that at the time, Pandora had a catalog of about 1 million songs. That’s it. And it was a very successful service.

That is what we launched in the US in 2014, and around the world in 2015. We built that for people who are maybe more casual music listeners. Of course, everyone on my team was not a casual music listener, so we were like, “Well, we’ve got to build something for ourselves too.” We all knew we would want to build that premium service because we believed — and have been proven right — that over time consumers’ appetite for spending more money on subscriptions would increase, and the mindset would shift from, “Gosh, that’s a lot of money to pay for music,” to, “This is an entertainment service I want to have. And at $10 a month for all the world’s music, it’s a ridiculous bargain, let’s be honest.”

I think music is extremely undervalued compared to what you get for your $10 a month.

It’s an incredible value. There is no doubt.

That to me is one of the foundational questions here. You can pay $12 a month to Netflix and get the Netflix catalog. You can pay $12 a month to Disney and get the Disney catalog and maybe some Hulu and whatever is on ESPN Plus. You pay $10 a month to Amazon, Apple, or Spotify and you get all the songs in the world.

The whole shooting match.

Does that market feel upside-down to you? It doesn’t feel like that’s how that should work.

Well, I think you have to understand some of the genesis of that. Part of it is that no industry was more disrupted by digital, with piracy, than music. One of the things was that you had to make [streaming] more convenient than stealing music. If you ended up in a land of, “Amazon has this catalog, Apple has that catalog, Spotify has that catalog,” it’s just going to create more piracy. People who like one service or the other are going to find ways to pirate the music that’s not on it. 

I also think you have to look at how people listen to music compared to how they consume video. People want to make playlists, and the content is much shorter. You engage with it in very different ways that I think would make having these islands of catalogs very different. There was a moment when one of the services tried to go big into exclusives. Ultimately, it wasn’t very friendly to consumers, and frankly, the industry didn’t quite like it either. That ended pretty quickly. 

I do think it’s the right product for consumers, and I have yet to meet someone who doesn’t think it’s awesome that they get access to all the world’s music. It is very reasonably priced and has been that way for quite a long time. Obviously, there are some changes that have been talked about recently, and that is an interesting development.

I want to get into that, because it seems like the music industry, the artists and labels, always want more of what is effectively a fixed amount of money. Everyone is only paying so much, and the only way you can make more money for the actual musicians is by raising prices. It seems very difficult to make more money in any other way. You can make more money for the companies — for Amazons and Spotifys — by layering other kinds of content like podcasts and audiobooks, but it seems like there is only one lever to actually generate more money for the music industry.

Well, in terms of recorded music, if you’re paying a flat fee per month, the two ways that we can put more money in the hands of musicians are to have more subscribers — so that the total amount of money available is bigger — or to have a higher price. Those are the two levers you have. 

Obviously, I’m not privy to the types of deals that the artists have with the labels and the publishers, and we leave that to that side as well. I think that’s actually one of the interesting things about Amazon that sets us apart from the other services. As we look at what a streaming service is going forward, I tell my team that we have been in a streaming service 1.0 world for the last few years, where the primary goal has been to distribute a huge catalog of recorded music and help customers find what they want to play next.

I’m going to use my terrible pun again. Now that streaming is mainstream, that is how everyone listens to music and it has taken over retail. This is how we both consume music and discover music. It’s kind of displacing radio and retail all at the same time. The way consumers want to engage with artists is different, and is beyond the recorded music. They want to express their fandom and they want to get deeper. 

When I talk to my team about 2.0, it’s like, “We need to think about a streaming service as not just being a catalog of recorded music, but being a host of services that connect artists and fans together.” You’ve seen some of the things we’re doing there; we have invested heavily in livestreaming and in merch. So yes, there is a fixed pool of money in recorded music, but the pool keeps growing, right? It’s fixed per customer, but when you get into areas like merch, there are unlimited amounts that people are willing to spend to connect with their favorite artist and to represent their fandom. Obviously, Amazon has a position as a pretty big global retailer that is good at e-commerce and logistics, and it is a brand that people really trust as a place to spend money. I think that sets us up really well for the future.

There is Twitch, by the way, which is also pretty good at livestreaming. We’ll come back to that. Let’s keep going through the Decoder questions. How many people are part of Amazon Music right now?

My organization comprises the Amazon Music service that includes music and podcasting, our live radio service we call Amp, Wondery, and then some other smaller, more internal things. All in, it’s a few thousand people.

How is that structured? Are most of your people engineering and tech, are most of them music industry attorneys, or are most of them artist marketing?

Definitely not mostly music industry attorneys. We are a media company that is fueled by tech. The majority of our employees are tech, but we have a lot of employees who are not tech. Some of them come from a long time in the music industry while some of them are newer. Some come from other parts of Amazon, and are massive music fans that want to work in this part of the company. We have brought in a number of people from the industry to bring some music DNA into the team.

This is the classic Decoder question that I ask everybody. You have run a music service through a time of great change. You have made a lot of decisions. How do you make decisions?

How do I make decisions? You have probably heard this answer before from other Amazon executives. We have a decision-making framework: we think of decisions as one-way door or two-way door decisions. Once you take one-way doors, they’re really hard to unwind; it’s hard to open that door and walk back through. Two-way doors are easy to walk back through, and we really encourage people to take them quickly. “Be willing to fail because you can unwind it.” 

So here is a good example of a one-way door decision. When we decided to put music into Prime, that was a one-way door. Could we unwind it? Of course we could. It’s going to be painful, though. At that point, we take our time, we do a lot of analysis, we write white papers, and we take them up to Jeff Bezos — who was the CEO at that time — and get him to review it when it’s a big investment like that. That’s still the common framework we use at Amazon.

Give me an example of a two-way door decision.

A two-way door would be launching some new feature, and three months into it, it doesn’t have the uptake that we hoped it would have. “Do we shut it down?” Well, yes, we can shut it down. If it’s not providing enough value to customers, we can do that. That’s an easy two-way door decision. A marketing plan is another. “Should we experiment with marketing in this channel?” Well, why don’t we experiment? We can always just stop. Let’s not spend a ton of time getting into analysis paralysis, and let’s go learn by actually doing it.

Music is a very unique cultural product. The music streaming apps sort of reflect the culture back at you. They are a canvas you don’t control, in some way. When people go to listen to Taylor Swift, I don’t think they care a lot about your — or Apple’s or Spotify’s — presentation of Taylor Swift; they just want to get to Taylor Swift. That is a pretty unique challenge in terms of the product you express to customers. Where do you think about that split? Do you have people thinking about that every day? “Okay, the new Taylor Swift record is dropping. It has to look good. We have to market this.” Is that how you acquire customers or is that how you keep customers happy? Or do you just have a music player app, and all the customer acquisition happens somewhere else?

Obviously, whenever we’re doing something, we are working closely with the artists. Whatever their artistic vision is for how their new release is going to be represented, we are working closely with them to represent that within our framework. You should think about how we need to be culturally relevant, so it’s not specifically about acquisition or retention. 

At the end of the day, you want to use a music service because it feels like it’s part of music culture. We have to make our service feel like it understands, is aware of, contributes to, and reflects music culture. By doing that, we think people will want to use the service. The people who are focused on subscriber acquisition are not like, “Oh, the Taylor Swift release is coming out so we can do X, Y, or Z,” because obviously the release is going to be available on all services. It’s not really a specific tool, in that regard.

What are the biggest tools for you to go get subscribers?

Well, as I mentioned, if you look at the history of music startups, one of the problems has been how to acquire customers. It’s expensive. It may be $10 a month, but we pay a substantial amount of that revenue back to the rights holders who in turn pay the musicians and the songwriters. There is a limited amount you can spend on traditional marketing means. I think the companies that have been successful have figured out ways around that. 

One of the ways we found is that we have managed to build a service that is great for Amazon customers. We focus on Amazon Prime and we focus on Alexa. These are areas that have brought lots of new customers into the fold, and as a result, we have brought lots of new people into music streaming over the years. We also acquire customers from Amazon as well. 

If you think about Apple, a lot of it has come through iOS, and Spotify has their free tier that has kind of been their distribution channel. I think the ones who have struggled have been those who couldn’t find that distribution point to build a service on top of.

To me, that is the biggest structural question about the music industry. Almost all of the players — apart from Spotify, which has its own structural support from the music industry — like Amazon, YouTube Music, and Apple, are all part of massive concerns that can somewhat subsidize the growth of the thing until it is self-sustaining. There is Spotify, which has major investments from the labels and investors. I think the labels in particular are pretty keen to make sure Spotify exists. Even Tidal is part of Block now. If Amazon Music was independent, would it be self-sustaining?

Over time, it would be. I can’t speak for the other big tech companies, but there is a myth that, “Oh, we’re just using music to sell other stuff.” It’s simply not the way it works. I mean, I run a P&L. In fact, I’m about to present our annual plan to the CEO. I have to show what our profitability profile looks like and what the cumulative investment and cumulative return in the business is over time. So yes, over time we would be self-sustaining. But like any business, you go negative for a while as you invest in building the customer base and building out the product, and then over time you’re able to get leverage on your investment.

Amazon is actually really famous for that planning process. There are entire books about it that people can read.

I could probably write a couple by now.

I feel like Amazon executives are the best guests to have on Decoder because it maps onto how Amazon operates in many ways. That planning process is really rigorous. You have to lay it out, write memos, et cetera. Amazon has different kinds of decisions it could make. The music industry is fickle, unpredictable, and full of weirdo scandals. How on earth do you make a strategic plan that you can hold onto in the face of whatever is going to happen in the music industry over the next three weeks or six months?

From a planning perspective and working with the major labels and publishers, I don’t think it’s that fickle. We have long-standing relationships with them and we consider them partners. We enter into long-term contracts, and we talk all the time about how the industry is evolving and about what our needs are and what their needs are. 

Certainly on the artistic side, and from some of the stuff you see in the press, it can seem from afar that maybe, “Wow, there is a lot of chaos going on in the industry.” On the business side of the industry, I don’t think it is nearly as chaotic as that. 

I don’t think that’s any different from any other business. We have to take a long-term perspective and make educated judgments about what we think is going to happen in the future. We are a big enough player in the industry that we can actually play a role in making sure that our educated judgments are going to happen and actually do come to pass.

That seems different, right? From when you started in 2012 to now.

Yes.

I don’t think it’s been that stable. I don’t think I would have gotten that answer even five years ago.

I think the turning point for us was probably in 2015, when we went to talk to the major labels about licensing Amazon Music Unlimited. We talked about Prime Music earlier, which is our service that comes bundled with Prime. You can then upgrade to the full on-demand catalog with 100 million songs, which is called Amazon Music Unlimited. 

We went in early 2016 to talk to the labels about that, and you could feel the shift happening. In the industry overall, I think the fear of digital and the fear of streaming was subsiding and there was a realization that, “This is actually where it’s going. This is going to replace retail, so we need to embrace it.”

Then we came to the table. If you look at the timeline, that’s right when Echo devices were just starting to catch the public imagination a little bit. We literally went to visit all the major labels carrying an extra suitcase full of Echo devices to hand out to them in case they didn’t have one. And to their credit, almost all of the executives we brought them to said, “I already got one.” They understood that there was a lot of innovation happening that was going to make digital music get bigger and bigger.

I can’t speak for the other guys, but for Amazon that was the turning point. We started off having good relationships but it was challenging to license new things. We were asking for stuff they weren’t used to giving. Like I said, digital destroyed the music industry for a while, so they were understandably reticent. That was probably shifting before we went to visit them at an industry level, when we showed up in early 2016, and the conversations have changed ever since. They have been very positive and collaborative since then.

How long are the contracts you have with the labels?

They are multi-year contracts.

Is that five-years? 10-years?

No, not five. They are typically two- to three-year deals. You can figure it out from reading Spotify’s public filings. You can see when they’re in re-negotiations and those are pretty common across the industry.

It’s good that one of your competitors has to make public disclosures and you don’t because you’re buried inside of Amazon. I mean, it’s true for Apple Music as well.

Frankly, I think both sides would be reticent to do five-year deals. Stuff is still changing rapidly and I think that would leave both of us exposed to things we don’t want. We would end up having to renegotiate two, three years into the deal anyways, like, “Hey, this changed. That doesn’t make sense anymore.” One or both of us would be coming back to the negotiating table on various points. I think the duration of the deals makes sense, given the context. It’s 10 years into streaming, and it is still a rapidly changing and evolving industry.

That’s the main thing that strikes me when I talk about the structural nature of the music market. You make the consumer product, and I still think I don’t pay you enough money for the number of songs I get.

Well, I’m happy to take more. We can arrange for that.

I think that’s a hard sell. The music industry and streaming companies have a long way to go to convince people of how much value they’re getting in their lives for the amount of money they spend on it, versus something like every Marvel movie. I have seen them all, yet I’m still paying Disney and I don’t know why. But I’m going to open my music app 10 times a day, and I think there is something imbalanced there.

Inside of that is a series of competitive content licensing negotiations that occur every two to three years amongst several huge players on both sides. There are only so many major labels, and it feels like unless someone stops them, they will just consolidate into one major label by the end of it all — because they keep doing it. There are only so many big tech companies. I doubt the tech companies are going to consolidate, but you never know.

Yeah. I’m not going to opine on either of those two statements.

Every two to three years, there is a pretty competitive renegotiation of how the entire industry should work, what the rates should be, how the payouts work. Is that the business? Or is the business the technology and the user experience?

I don’t think that’s quite right. Every two to three years, you are not restructuring the whole industry.

You could. You could flip the table and say, “We’re done with this,” and walk away.

Yes, but we’re business partners over a long time. It’s just not the way things are going to go down.

I just can’t think of any other business, outside of sports streaming, where every couple of years they could say, “You know what? We actually don’t like any of this.” There are very few businesses where even the possibility exists that every few years the entire structure of the industry would change.

I guess, theoretically, that’s right. But they are also public companies now.

That’s true.

They have investors who are making long-term investment decisions based on the predictability of revenue and the structure of the industry. Is there some big new thing that’s going to come along? There have been these major format shifts, streaming being the latest of them. Is there a next big shift? There might be. 

I don’t think within streaming you’re going to see massive structural changes. We’re trying to do new things; the other guys are trying to do new things. You need to get licenses to be able to do that, and then you have to figure out the economics of how that works. I think the core structure of the industry is pretty well set in terms of streaming, but there could always be something brand new that comes along that displaces or augments streaming or is supplemental to it and has a totally different structure. That is more likely what’s going to happen. Streaming is driving almost all the revenue in the industry these days, except for the resurgence of vinyl, which is fun to watch.

Which is also good for Amazon.

Great for Amazon. It’s ironic for me, because when I joined Amazon 10 years ago, vinyl was a hipster thing. People were buying turntables at Urban Outfitters, which is just weird. I remember saying, “Well, when I grew up, vinyl was how you listened to music.” I didn’t have a choice. It wasn’t cool. The music was cool, but not the format. It’s great to see vinyl growing like it is. I saw Taylor Swift’s numbers. I think she sold half a million or more vinyl copies in the first week. It’s incredible.

In my family, we bought three. One for me, one for the niece, and one for the nephew. It’s ridiculous.

It’s amazing that she could actually manufacture that many. That has been the biggest problem with vinyl. There is just not enough manufacturing capacity. 

There have been these big shifts. Streaming is really driving almost all the revenue, and certainly all the revenue growth, in the industry. Is there going to be something new that comes on top of that? That seems like the more likely outcome to me.

Do you think that something new is merch or a concert livestream?

Well, that’s new for us and new for the artists. Merch and livestreaming are a different part of the industry than the recorded music industry, so we’re working directly with artists on that. We work with the labels to some extent, but ultimately, they are less involved in that stuff than on the recorded music where they own the copyrights.

One of the things you did roll out in recorded music was higher quality tiers. I think you have HD and surround audio, like 360 audio. Does that stuff play? I am a nerd for that stuff. I’ll take the lossless streaming all day, all night. My experience in this industry, and with our audience, is that convenience trumps quality every time. So asking people to pay for higher quality is always just a slog.

We rolled out Amazon Music HD back in 2019. Almost right before the pandemic, if I recall. Our goal was to take higher-quality audio more mainstream. At the time, you would pay $9.99 for a base plan, and then other services would charge you another $10 to get it to $19.99 to have the lossless audio. We all said that was way too niche and way too expensive. We worked with the labels like, “We want to make this more mainstream. We want to do it and we want a wholesale price to support us to be able to go out at $15.” So just a $5 add-on. So we launched that. Everything in the catalog is CD quality or better. We called it HD or Ultra HD. Ultra HD is now 192 kHz and all that kind of stuff.

Before things changed about a year and a half ago, Amazon Music HD was bigger than all the other high-fidelity services combined. That being said, it was still relatively small in the industry, but we think it was a really important driver. You’re right that convenience has trumped quality at almost every turn in the evolution of digital music. It’s already so darn convenient now, our view is that it is time for quality. It was a false trade-off at some point, though it was the right trade-off, back when storage and bandwidth were limited. “Well, I want to have smaller files,” makes more sense. All of those things drove us to actually dumb down the product that was recorded in the studio to give to consumers. 

You talk about weird things in the industry. That is weird. The artist records it at this quality and we’re like, “Yeah. That’s not what we’re going to give you. We’re going to give you something worse.” “Why would you do that?” “Well, technical constraints.” We are past that point. Now you get 5G, almost unlimited capacity on your phone, and more storage on your PC. How much was it for a gigabyte back then? Now a terabyte costs you a buck or something like that. 

We felt that because the technical constraints are gone, we don’t have to trade between convenience and quality anymore. I do think a growing number of people care. I think vinyl is actually evidence of that, to some extent. When you talk about vinyl, some like the sound quality, and for other people it’s actually considered more like merch. It’s the way they have a physical connection with their artist.

Then, we added spatial audio. Dolby Atmos, Sony 360 Reality Audio. Interestingly, I think we’re finding that people are gravitating towards that content even more than the higher quality bit rates, because you can really hear the difference. We’ve done it. You just use our mobile app. You don’t need special headphones or anything.

Do you think it sounds good?

I think a good mix sounds unbelievable.

That’s a very careful answer.

There are some mixes that are less good than others. I could say the same about studio albums.

That’s true.

Some studio mixes aren’t awesome. If you hear a really good mix in spatial, like in Dolby Atmos, it’s actually mind-blowing.

What’s the best mix you’ve heard in spatial audio?

The first song you always hear is “Rocket Man.” It’s amazing. That was the one where I was like, “Oh, my gosh. We have to do this.” 

I lived in the Bay Area, and the Amazon Devices team invited me down to the office down in Sunnyvale to play it for me. They just sat there watching my face, wondering what I was going to think about the music. My jaw practically had to be picked up off the floor. It was amazing. That was the first one. I always like to use “Another One Bites the Dust” by Queen as well.

I’ve listened to both of those.

You don’t like them?

The idea that Brian May is sneaking up behind me to play a guitar solo is just not that compelling. The reason I’m asking this line of questions is because you’re right. The artists are in the studio and they make a thing. It’s strange that the default price gets you a worse version of the thing and you have to pay to get closer to the artist’s intent. Then you can hear it, but because the music industry can put some chrome fins on “Another One Bites the Dust” and make it swirl all around you, you pay yet more money.

It’s not that different from what happened in video. Remember a time when we started to all get HDTVs?

But that was perceptible.

You used to pay $10 extra to Comcast, or whoever your provider was, to get HD television and then it got ultimately bundled in. That’s really what has happened now in music. We came out at $5 a month, and two years later it’s now part of the base service. You don’t have to upgrade to Amazon Music HD to get all the HD quality. It comes as part of the base service now. I think it’s very analogous to what happened in video.

Going back to the contract negotiation, in two or three years you are going to go to the labels and say, “Right now, you’re charging us more money to stream lossless audio, and you’re charging us more money to stream in spatial audio. We want to bundle that into the base price and take that revenue stream away.” It’s a gate. They have a revenue gate around higher-quality files, differently mastered files, or differently mixed files. Over time, you’re saying those gates will go away and it’ll just become bundled into the default. Is that the conversation every two to three years?

Well, some of those conversations happen in the interim period when market conditions change. I mean, neither they nor we have to wait for the contract to be over to say, “You know what? This term doesn’t work anymore because something has changed.” To your question directly, that is the type of thing that we would talk about in a renewal conversation.

Are those conversations competitive? “Okay. Apple has rolled out lossless, but Spotify hasn’t. What are the terms my competitors are getting?”

Well, obviously, I don’t know what their terms are.

You must be very interested in their terms.

Of course I’m interested. I’m sure they’re interested in my terms. That doesn’t mean I know them.

Say what your terms are. Let’s see if I can get Eddy Cue [Apple’s senior vice president of Services, who oversees Apple Music] on next.

Let me think about that for a second. Of course, the labels are not going to tell us what the terms are with other providers, nor do we tell one label what the terms are with the other label. We’re all big companies. The major labels, the music streaming services, we’re all big companies and these are arm’s-length negotiations. We all have different asks and our services aren’t the same. 

The core value proposition of all the world’s music for a really good price is the same, but there are lots of nuances in what we do that require licenses and marketing things that end up in puts-and-takes that are different from service to service. It’s almost hard to compare us outside of, “Am I getting all the music?” Beyond that, it’s harder to compare the deals.

You mentioned Echo several times. Obviously, with Echo comes Alexa.  When I talked to Dave Limp we talked about what people do with Alexa. Unsurprisingly they ask it to play music. It seems like a very important piece of the Alexa puzzle over time.

For sure.

Is that something you take to the labels? “Hey, we want Alexa devices to work out of the box. We need some version of Amazon Music that operates, but you’re going to get all these additional streams. We will guarantee you some amount of activity because that’s what people do with these devices.”

Almost everything you said is exactly what we did, actually.

That’s the first one I’ve gotten right in this entire conversation.

Hey, there’s a first time for everything. 

I mentioned that our relationships really changed in 2016. We went to the labels with an idea. It wasn’t just that we wanted to launch Amazon Music Unlimited, which you use on your phone, on an Echo, on your television, on your laptop, wherever you want to use it. We saw an opportunity to do something different. 

If you think about it, a lot of services have tried to create what we call a mid-tier service, meaning less than $10 a month. I won’t name all the companies that tried to do it, but each and every one of them failed. They failed because they got over-regulated in their licenses as to what they could do. The fear was always that if you make it just good enough, people will say, “That’s good enough, so I’ll pay $5 a month instead of $10.” You would end up not growing the market but actually shrinking the market. It was like, “Oh, you can only have three downloads a month,” or these types of restrictions, which aren’t very consumer-friendly or possible to explain to people. They all failed.

We actually went, “We have a great idea, this device is begging for a full catalog of music.” When we launched the Echo device we only had Prime Music at the time, which by design was a limited catalog; it had 2 million songs back in the day. There’s no screen on an Echo. If you have a phone or any kind of visual interface, a streaming service can really guide you to the music. It gets to decide how you browse and search for music because it is controlling the structure of the interface. With no screen on an Echo device, we don’t control anything. The customer just walks up and says what he or she feels like saying. What we found is that people wanted the full catalog. 

The way I explained it to Jeff [Bezos] was, “Imagine if you went to Alexa and asked, ‘Hey Alexa, what’s the weather in San Francisco?’ And Alexa’s response was, ‘I’m sorry, but San Francisco weather is not included in your Prime membership, but here’s the weather in Los Angeles.’” That’s what the Prime Music experience was, and that is not a great customer experience. You might ask for the latest song by Drake, but if that wasn’t in our catalog for whatever reason she would just say, “It’s not available.”

So we went to the label and said, “We need a full catalog. You can look at all the data of who is buying the Echo device and we think it’s going to expand the market. Therefore, what we want is a full catalog service that works only on this device, so it’s tied to the device almost like an electronic program guide [EPG] would be tied to your television, but we want to launch it at a reduced price of a $4.99 service.” So it’s the first mid-tier service where it’s a fully functioning product, and there’s nothing for the customer to try to figure out. 

No limitations. Nothing like “I can only ask it to play a song six times.” There’s none of that. You can do whatever you want, but it’s only $5 a month. The moment you try to use it on your phone or on your television you’re going to be prompted to upgrade. We call this the single-device plan. It’s been immensely successful, and one of the pitches to the labels was, “If that customer never tries to use it on their phone, never gets presented with an upgrade message, then this is found money for you. This is a new customer in the ecosystem.” 

By the way, it’s priced at a level. If you go back to the peak of the music industry pre-streaming, 50 percent of US consumers bought music and 50 percent listened to it but never paid for any music. The average spend of those who bought music was $50 a year. So when we came to the labels with this idea of a perfectly designed mid-tier service at $60 a year, it was actually more revenue than they were making off the average CD buyer back in the day. It’s been hugely successful. A lot of people come in on an Echo, they buy that plan, then a lot of them will upgrade either to the individual plan or the family plan. In that case, it acts as a nice low-cost on-ramp into streaming.

Then there are other people who like, “No, that’s all I want. I just want it on this device. I’ve got my smart speaker. I don’t want to listen to it on my phone. Maybe I’ll pay for a separate service on my phone.” 

Internally, we say music is more of an “or” business versus an “and” business like video. Meaning with video, you’ll subscribe to Prime “and” Netflix “and” HBO. In music you tend, because the proposition is all the world’s music, it tends to be more of an “or.” You subscribe to Amazon “or” Apple “or” Spotify. We have enough data to support our belief that there’s a certain number of customers who are subscribing to the single-device plan who may be subscribing to a competitive service on their phone, but we have spent so much energy on building a great voice interface for music that they prefer our service on an Echo device. They are willing to pay, so now that is extra revenue for the industry.

When you say, “Okay, we’re going to expand the service that is included with Prime to be the full catalog, to be ad-free, and to have shuffle,” is that based on the same thing? How does that work?

That wasn’t so much about Alexa. Prime has this massive membership base around the world, and it has been a great revenue and growth engine for Amazon Music and our partners. When we launched it in 2014, streaming was new and people’s expectations were different. Now, streaming is no longer new and people’s expectations are that they should get access to everything. We live in the kind of world where I have access to everything whenever I want it.

It was just going to the labels and explaining, “Look, this is our vision for the product going forward. We want you guys to support it.” We talk through why we’re doing it, we explain, we give them data, and we reaffirm our commitment that we ultimately want people in the premium service. We look at Prime Music as the best service you can get without having to spend an extra $10 a month out in the marketplace. But ultimately, it has limited functionality compared to a full on-demand service and we want people to upgrade at the end of the day.

I pay Amazon however much money for Prime. Are more of those dollars being allocated to the music industry when I use the new service that’s bundled with Prime?

I can’t really talk about the details of those deals.

Can you nod in one way or the other?

Well, it’s an audio service. I’ll just move my head in circles.

Let’s talk about podcasts. You’re bundling in some Wondery podcasts, and you’re taking the ads out. We’re on a podcast. I am deeply familiar with how the podcast business works, as you can imagine.

I’m sure you are.

Taking the ads out is a big deal. You’re now saying, “Okay, we’re going to get fixed revenue out of this catalog of audio that you own,” as opposed to the variable revenue of, “Okay, there is an audience here. We’re going to bring in demand for this catalog and set rates on it against these audiences.” Because it’s Amazon Music and because you’re streaming, you can actually target the customer in a way that other podcast players that run an RSS cannot. Why take that revenue away?

In the case of Wondery, we are still distributing all of Wondery’s podcasts across other podcast-listening apps, and those are ad-supported. There is also a subscription option called Wondery Plus that you can subscribe to directly or through Apple. I think according to Apple, that is the biggest podcast subscription in the marketplace. 

Prime members can get podcasts anywhere they want; they can get them on Amazon and a multitude of places. We see growth in the podcasting market really happening in terms of the number of listeners coming on board. It has moved away from being a niche, geeky thing a few years ago to being really right in the middle of the mainstream, but there is still a lot of growth left.

We looked at and talked to customers about, “What is it that you want?” The number one thing was, “Can you make it ad-free?” There are different types of podcasts, and in some cases ads are more disruptive than others. When you’re hearing a narrative story and an ad comes up right in the middle of the story, it’s quite disruptive. If it’s more of a talk-radio-style type of podcast, I think ads are honestly not as disruptive. I think you can take a little more nuanced approach.

How does that money work? That’s the piece of the puzzle that I’m trying to sort out. You still distribute your podcast episodes to all platforms. Amazon only windows exclusives for about a week I think.

Yes, for a short period. That’s right. We call that early access.

You distribute it everywhere and you put the ads in. The ads are mostly dynamically inserted on most platforms now and you can target audiences against whatever you want. Let’s say, “It’s Christmas, so we’re going to do holiday songs.”

Well, actually most ads for podcasting are still being sold show-based, not audience-based.

That’s different than our experience.

Well, I can speak from the Wondery experience. The higher CPMs right now are still selling by show versus selling by audience. It is changing, I agree with you there. It is definitely changing.

So you have done the math and you’re saying, “Okay, for this segment of listens, we can take the ads out and allocate some dollars from the Prime bundle and we’ll make more.”

That’s right.

Who does that math? Do you have an Excel department? Is that you? Who makes that decision?

We don’t have an Excel department per se, but Amazon does have a team of economists who look at Prime and the subscription revenue that Prime members pay, either annual or monthly, and allocate that revenue out to the various benefits that come with Prime. Obviously, free shipping and Prime Video are easily the top two benefits. Music is the third, but it’s quite a distant third in terms of the revenue allocated.

When you decided to do the Wondery deal — and the other podcast deals you have done — was that the same motivation that Spotify has been very public about? “You give us a dollar, we spend 70 cents with the labels, we have to find something else to increase our margins.”

I don’t exactly know their motivation.

Well, they have been very public about it.

If that is their motivation, then the answer is no. With Wondery, we saw an opportunity. One difference that we like is that we can own IP, which we don’t in music. We are not the IP owner, the labels and the publishers are. So that’s great. 

We actually looked at it more, and you can see from our strategy that we continue to distribute all the Wondery podcasts broadly, including on Spotify, on Apple, et cetera. We saw an opportunity to build a big advertising business. We thought then and we continue to think that they are absolutely the best in the business, both from a content production perspective and from an ads perspective.

You can see the deals that we have done since Wondery became part of Amazon — doing partnerships with SmartLess, My Favorite Murder, Morbid, et cetera. They’re now the number two publisher from an ad network perspective in the United States, up from number three, and their goal is to become number one over time. We see an opportunity to build a big ads business, and that ads business is going to be at that scale, not by having everything exclusive on Amazon, but by actually having things continue to be distributed broadly.

Do you think the podcasts bring people into Amazon Music? Or is Wondery its own business that’s going to do its own thing?

It’s a little of both. Wondery operates independently, but it reports to me and Jen Sargent, the CEO, who is part of my leadership team. They work closely on some of the podcast things that are happening inside of Amazon Music, but at the same time, they are running as an independent company.

The same thing that happened to music streaming is happening in podcasts. It’s very hard to find an independent music streaming company, because they are all tied to some bigger thing. There’s a massive wave of consolidation acquisition amongst podcast studios — Spotify bought Gimlet, The New York Times bought Serial Productions, Audacy bought Cadence 13, our company, Vox, bought Criminal and Cafe, Amazon bought Wondery. Is it just the nature of the industry that you need to be part of a bundle, that you need a larger suite of brands, or that you need to be tied to distribution in some way? Do you think independent podcast studios can survive?

I absolutely believe independent podcast studios can survive. No one has to be acquired. I think between Wondery and us, we saw unique synergy. There are lots of independent podcast studios that I just described that are working with us as partners, and not through acquisition, that we can help to monetize better than they were on their own and actually help them stay independent. I don’t think you are going to continue to see a huge consolidation of all these studios in podcasting.

Do you think that market has hit a peak? It has been a pretty intense wave up until now.

It seems to me like it’s slowed down already. I mean, we bought Wondery 18 months ago, and we haven’t bought anybody else. When we did the deal with SmartLess, it was misrepresented in the press as us having acquired SmartLess, which was not the case at all. It’s a partnership where we exclusively represent their ads and do some other smaller things, like early access on episodes for a week. At the end of the day, we didn’t acquire SmartLess. Those guys are building an incredible media company on their own. We are helping them monetize it and make it more valuable, but they are staying independent.

One of the things that strikes me about all this is that theoretically what Amazon brings to table is massive distribution and the entire Amazon suite of things; you are a trusted company, hold a lot of credit cards, you can drive purchases for all this other stuff. 

It just strikes me that as we have this conversation, the music industry is full of gatekeepers left and right, in a way that the tech industry kind of isn’t. There are two gigantic gatekeepers at the intersection of music and tech — there’s Apple and there’s Google. Spotify is in this endless vitriolic fight with Apple. They just published a bunch of stuff yesterday about how Apple won’t let them sell audiobooks in the right way. Amazon is the poster child for, “You can’t buy a book or a digital item on an iOS device without jumping through some series of complicated hoops.”

Not 100 percent the case, but yes, by and large. You can subscribe to Amazon Music Unlimited and you can subscribe to Audible through Apple, but…

But you pay them the cut.

Yes, we do.

You can’t grow your business in the face of a 30 percent cut on every other thing you might sell. How does that relationship work for you with Apple and Google?

I don’t think we have enough time on this podcast.

There’s a reason I gave you time at the end, you gotta do it. I waited until the end. You have to answer the question. How is that relationship? Does that feel like a gatekeeper to you?

Well, we have a different relationship with each of them. We have much more wide-ranging relationships than perhaps some other companies, just given our scale. We retail devices on Amazon, Apple Music is a partner on Echo, and we work really closely with Google all across the board. It was my decision to put Amazon Music Unlimited in Apple in the App Store, where I would agree to pay a share. By the way, it works differently with subscriptions than with transactions.

Yes, Apple lowers it’s cut to 15 percent in the second year of a subscription. 

Correct. That was my decision. Other business owners can make their own decisions, but then obviously there is a higher-level relationship discussion that happens from time to time. I would say they are complicated relationships. On the whole, positive, but complicated.

Do you perceive the additional leverage of the higher-level business conversation when you’re making your decisions? Do you say, “Okay, look, we really need to roll out more digital merch in the store. We really want to sell more things from artists on Amazon Music.” Some of those things are digital items like wallpapers.

We haven’t done that at this point.

I’m imagining something where Apple would take a tax. “We want to sell an ebook from Taylor Swift next to her page in the store. That is a new revenue line for us, and Apple wants a cut of that.” Is that, “Okay, I’m going to try to make that deal”? Or is it, “I’m going to call Andy Jassy [Amazon CEO] and he’s going to say, ‘I’m yanking Prime Video off Apple TV unless you make this deal’”?

I really can’t go into that. The example you gave of wallpapers is an easier one because it’s a digital good. There’s no cost of goods sold. If I have to pay 70 percent back to the labels and publishers, that gets problematic. If it’s something totally new that Taylor has the rights to, then it’s a much easier conversation.

Spotify has framed this stuff as an existential threat to their business. “We can’t expand our market if we have to pay a cut for everything we invent.” Do you feel it as existential? Do you feel like it’s in your way?

It’s definitely not existential for us, no. Would I like it to be somewhat different? Yeah, probably, but at the end of the day, it’s not existential for us. Audible has a really big audiobooks business that has thrived in a longstanding partnership with Apple. They’re the biggest audiobooks player out there, and they have been working with Apple for 15-plus years, 20-plus years. They have managed to build a big business while working with Apple. I can’t really speak to Spotify’s position and what they want or need, but Amazon has managed to build big businesses. Even when Audible wasn’t as big as they are today, they managed to build a big business working with Apple.

Do you just need this scale to operate and play in the game? That feels like the theme of the conversation.

Spotify has scale.

Not as much as Amazon.

In music they have a lot of scale.

In music they have a lot of scale, but Amazon retail is the iPhone. There is a different kind of scale that is happening here. Do you need to be all-encompassing in this way to compete?

I don’t think so, no.

I have talked to so many artists, music people, and tech people who tell me that NFTs and the blockchain are going to revolutionize this industry. We are going to stop streaming and we are going to pay for NFT tracks or whatever it is, and it’s going to end your business. Do you spend your time thinking about NFTs?

I don’t stay up at night worrying about NFTs, and I don’t think it’s going to end the business. I think there is a lot to be seen. There is a potentially large opportunity to allow artists to engage more directly with fans. When I talked earlier about how we see the future, with artists and fans really connecting more and a lot more revenue to get from fans that way, that is where I see an opportunity for NFTs.

Would you retail NFTs in the app?

We would consider it. I don’t think it’s ready for mainstream or anywhere close to it at this point, so it’s not something you should expect to see from us in the near term. But yes, we are looking at NFTs. We’re looking at all kinds of ways for artists to build new revenue lines by connecting with their fans. Again, we view our position as pretty strong there, coming as Amazon and as a retailer, as someone customers trust to spend money. When you talk to the artists, that is actually what they’re looking for from us. They have been asking us as long as I have been in the business, “Hey, could you help me with X, Y, or Z?”

X, Y,  Z almost always involves, “How do I become more than just an artist? How do I build other business lines? You’re the biggest online retailer in the world, can you help me?” Now that we have this big base of a music service and we understand who the fans are of this artist and that artist, that gives us an incredible opportunity to expand those artists’ businesses over time.

Do you worry that just making hit songs isn’t enough to be a business anymore? This is the thing I worry about the most. When I was a kid with vinyl and then CDs, you were just an artist. You could sell a lot of vinyl, you could sell a lot of CDs, you could get a lot of radio plays, and you would be rich.

Well, they still made a lot of money on touring.

Well, sure, but it was all music. You had a hit song and that generated a lot of revenue for you in a lot of ways. Now it’s like you have a hit song and what you need to do is sell perfume. There is an immediate turn to merchandising that occurs.

There are plenty of artists who are making a ton of money on streaming. Let’s be honest about it. Those are the same artists who would have made a ton of money selling CDs and vinyl. There are more artists than there have ever been before by an order of magnitude or more. A lot of those artists aren’t having hit singles. Even in the old days with the one-hit wonders, I don’t know whether those artists were wealthy for life. 

Maybe streaming amplifies the most popular stuff so that it’s even more popular, but I think that is also just part of globalization of culture as a whole. The stuff that’s big tends to get bigger. The stuff that’s niche does struggle. My guess is that most of those artists, historically, needed to find other revenue sources beyond just selling vinyl and CDs. I like our ability to help them do that. Would I like them to see more money off of streaming? Absolutely. I think over time you’ll see it happen.

Apple just raised its rates. Are you going to raise your rates?

If we do decide to raise the rates, I will announce that to all my customers at the same time, as opposed to on a podcast. I don’t know that they’re all listening right now.

We can make that happen. Put Decoder on the front page of the Amazon app. Let’s go.

We actually have raised the price on a couple of our plans in this calendar year, 2022. Yes, Apple just raised prices as well. We are always looking at what the right price point is for our customers. If and when we have something to announce, we’ll make sure you hear about it.

Ok, fair enough. I want to end by talking about MusiCares, which I know is very important to you. We have talked a lot about artists, how artists make money, and how to grow the market. It was a rough couple years in the music industry because touring shut down. That whole revenue stream went to nothing for so many artists.

Not just for artists, important to point out. It was everyone involved in live music.

Right, venues too. I bought a lot of merch from my favorite venue in the world, which is the Metro in Chicago. As many T-shirts as I could buy.

It’s awesome.

I don’t even live there. I haven’t been to the show there in years, but I saw the Instagram posts and bought a T-shirt whenever I could. They’re back. I think The Smashing Pumpkins just played the Metro.

Sounds like the band that would play them on the way back.

You are the chairman of MusiCares, which is a music aid organization. Tell us about that work, and tell us what the last two years have been like for you.

MusiCares is the foundation that  is affiliated with The Recording Academy — the people that put on the Grammys. It has been around for 30 years and it’s really the largest music charity in the business. Our goal is to help people in the music industry who need help. We kind of think of it as the people behind the music. Obviously, Beyoncé doesn’t need our help, she’s doing just fine. 

Like you said, when COVID-19 happened and the live music industry just stopped, there were a lot of people immediately out of work. Historically, MusiCares does things like financial assistance, medical assistance, and hearing clinics at festivals. We also do a lot of addiction recovery. Unfortunately, addiction continues to be a problem in almost any media business, but definitely in music. 

When COVID-19 hit, we recognized the unprecedented nature of this. I sat with the chairman, now CEO, of The Recording Academy, Harvey Mason Jr. We were like, “We have to do something.” It was going to be a while before the government kicked in and we were all just in shell shock. I think within two or three days of it being declared a global pandemic, we sat down and created what was called the MusiCares COVID-19 Relief Fund. We then went out and raised money from the tech companies like Amazon. Almost all of the companies in the industry participated, some very generously. Everyone was there, and it was important that we all get in there together.

Record labels and some very successful artists contributed. I don’t have the exact figures, but let’s call it roughly in the range of about $30 million raised and distributed as financial assistance. We have a very good vetting process because we have been doing this for years, to the point where other charities in the music business were coming to us and saying, “Hey, could we funnel the contributions we’re getting through you guys? Because you have a really good vetting process.” Vetting is to see, “Is this person really in the music industry? Have they been in it?” They had to have been in the music industry as their primary source of revenue for the last two years.

We were cutting checks to people within a few weeks of it being called a global pandemic. I can’t tell you the number of testimonials I’ve seen like, “You saved me, I was going to get kicked out of my house.” It has been just an incredibly meaningful organization. I have been chairman for about three years and on the board for about five, and it’s just an amazing organization that continues to grow. 

To give a context, that $30 million around COVID-19 relief was probably about four or five times what we normally do in a typical year of money raised and distributed to people in the music industry. So it was very intense. For the first two weeks of the pandemic, I definitely spent more time on MusiCares than on Amazon business. It was like nonstop, all day, every day, trying to raise money and talk to people. It was the same for Harvey Mason. It was just awesome. The outputs were awesome.

How does that work when you have two jobs like that? “Hey, I’m just going to go do MusiCares. We’re going to make sure that the venue owners and their employees are stable.” I’m guessing everyone understood, but how does that work when you have two jobs?

I mean, usually it’s fairly easy to balance. I have a time commitment with MusiCares and I schedule it into my day. I personally, and Amazon as a whole, view that as a really important part of the music industry. It’s a great thing that I’m involved, not just for me personally, but for the organization as well. We donate a lot of money to MusiCares and we get a lot of people involved in it. 

I have a great team, but for those first few weeks, it was crisis mode. For everybody around the world, it was crisis mode. The other leaders on my team stepped up. I was on the calls with them and we were talking about COVID-19 stuff, but on business stuff I just kind of let them go take care of things because I had to focus on this.

I think live music is one of those post-pandemic signals. I have been to more shows recently.

Yes. Same here.

Do you think it’s back?

I haven’t seen the data, but it certainly feels like it’s back. I mean, every show I have been to has been sold out. Every merch line is snaking around too. It’s impossible to get merch — which is one of the reasons why Amazon is interested in the merch business. It’s a pretty under-innovated space, let’s just say. 

It does feel back to me. I was actually at a show here last night in New York and it was full. Everyone was having a great time and dancing around. The artist made a comment about how wonderful it was to be in person after two years, and you could tell the connection was stronger than ever between the artist and the fans. It was great.

What’s the path for MusiCares now that live music is back?

Well, the need for MusiCares was amplified during the pandemic, but it has always been there. I think for us it’s about growing MusiCares. It’s well-known in the music industry, but not well-known enough. I want to call it the best-kept secret because it’s not really a secret, but there are still a lot of people who don’t know about it. It’s about making sure this next generation of artists knows about MusiCares, and expanding the types of services we provide. A lot of focus going forward is on mental health. We are seeing that as a growing problem among artists, particularly around the younger generation of artists, if I’m really honest. So that is an area that we’re expanding into.

That’s great. Steve, thank you so much for coming to Decoder. This was a great conversation.

Thanks, Nilay. I appreciate it.