Amazon (AMZN) – Get Amazon.com, Inc. Report is well known by investors for its main businesses: online retailing, cloud computing, subscription services, and its promising advertising segment. But the bigger the business, the harder it is to maintain expansion rates. Therefore, Amazon’s strategy has been to leverage its titanic size to explore any other opportunities in rapidly growing industries.
However, unlike video streaming, gaming development, or even satellite broadband delivery, Amazon seems uninterested in aggressively expanding in the music streaming industry. Here's why we believe Amazon may be leaving a massive load of cash on the table.
Figure 1: Amazon Music: Missing the Boat
Read more from Amazon Maven: Amazon Prime Video Could be Worth $1 Trillion in a Few Years
The global music streaming industry is worth billions today, and it's still growing. A Grand View Research report shows the music streaming market is poised to reach $103 billion in 2030, up from $34 billion in 2022. That’s three times the current tangible market in approximately eight years, implying a 14.7% CAGR (compound annual growth rate).
North America still represents the largest chunk of this market. And unlike the video streaming industry, which could be near to maturity, it still has room to grow. Developed countries are expected to be important growth drivers due to the advent of 5G technology and its capability of delivering higher-quality music.
Figure 2: U.S music streaming market
Source: Grand View Research
For emerging markets, the popularization of smartphones and access to the internet play a crucial role in music streaming market expansion. Investors should be optimistic about the industry, as internet delivery services such as Project Kuiper promise to gain traction in the next few years.
Spotify (SPOT) – Get Spotify Technology SA Report still remains by far the music streaming king. The Swedish company currently possesses 31% of global market share. The second-largest player, Apple (AAPL) – Get Apple Inc. Report Music, has only 15%. However, the bigger picture shows Spotify’s undisputed leadership might be cracking up: The company had 33% of the market in the second quarter of 2020 and 34% in the second quarter of 2019.
Figure 3: Global streaming music subscription market, Q2 2021.
Source: MIDiA Research
As the race tightens, YouTube Music is showing great relevance by outpacing Spotify’s growth from Q2 2020 to Q2 2021 (50% against 20%). Amazon Music is in the middle: The service grew 25% and is betting on 5G connectivity by launching a new music HD service that promises to provide lossless music streams and downloads.
I believe Spotify’s market loss is happening because of the competition's ability to offer a better customer experience. Apple’s dominant presence in the hardware market favors the adoption of Apple Music, while YouTube is able to join its video streaming platform with its own music streaming service, creating a higher-value product.
Amazon also has the ability to leverage its own ecosystem. However, it seems to refuse to do it aggressively. The company is the market leader in the smart speaker industry, which may partially explain Amazon Music’s success. But it is still far from the ground-shaking $15 billion annual investments Amazon makes in its video platform.
Figure 4: Global smart speaker by vendor, Q3 2021
Source: Strategy Analytics
In the end, Amazon might be just leaving money on the table — $5.6 billion per year, according to Bluesea Research. “Amazon Music subscription should have reached at least 70 million subscribers,” it wrote. “At an average revenue per user of $80, it would contribute $5.6 billion to the subscription segment. This is close to 20% of the total subscription revenue.”
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Amazon Maven)
Equity research contributor for DM Martins Research, covering Amazon and the retail space at large. Economics and accounting background from the University of Sao Paulo, one of the top finance universities in Brazil.