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Amazon’s Music Service Said to Hit Snags With Universal

Amazon's Offer To Low For Universal
Lady Gaga performs during her "artRave: The Artpop Ball" tour at Madison Square Garden In New York. As Inc. prepares to introduce a music streaming service, it has run into hurdles landing a deal with Universal Music Group Inc., whose artists include Lady Gaga and Kanye West, according to people familiar with the plans. Photographer: Kevin Mazur/WireImage/Getty Images

Add the world’s biggest record label to the list of companies standing up to Inc.

As the Seattle-based online retailer prepares to introduce a music streaming service to compete with Apple Inc., Spotify Ltd. and Pandora Media Inc., it has run into hurdles landing a deal with Universal Music Group Inc., whose artists include Kanye West and Lady Gaga, according to people familiar with the plans. Amazon offered Universal Music and other labels a lump sum in exchange for access to a selection of their catalog, an amount that Universal Music considers too low, said two people, who asked not to be identified because the discussions are private.

That makes Universal Music the latest media company embroiled with Amazon in a money dispute. Chief Executive Officer Jeff Bezos is also facing resistance from book publisher Hachette Book Group and Time Warner Inc.’s movie studio Warner Bros., which both have held out for better terms from the world’s biggest online retailer over their cut of sales.

The New York Post reported yesterday that Amazon’s streaming music service could be released as early as this week without Universal Music songs available.

Unlike Spotify and Apple’s Beats Music, Amazon’s music streaming won’t feature the latest releases and will focus on material that has been published at least several months ago, said the people familiar with the matter. It will be available to subscribers of Amazon’s $99-a-year unlimited-shipping Prime program, they said.

Different Approach

Amazon’s lump-sum offers to music companies differ from other music streaming services that pay record companies based on how many times a track is played, one person said. Warner Music Group and Sony Music Entertainment have signed on with Amazon, according to the New York Post.

Representatives from Amazon, Sony Music Entertainment and Warner Music didn’t respond to requests for comment yesterday. Annie Imamura, a spokeswoman for Universal Music, declined to comment.

Amazon’s contract disputes follow investor pressure on the company to become more profitable. The company makes less than 1 cent in profit for every dollar in revenue it generates, as Bezos spends on fulfillment centers, grocery delivery and new products like a smartphone it’s expected to unveil at an event in Seattle next week. Amazon, whose stock is down 16 percent this year, has argued the investments will pay off in the years ahead.

Industry Veterans

To create its new music service, Amazon is leaning on music-industry veterans it has hired in recent years. Michael Paull, who once ran Sony Music’s digital music business, and Drew Denbo, who did business development for the music services MOG and Rhapsody, have been helping to spearhead Amazon’s effort, said people familiar with the work. Steve Boom, who joined Amazon in 2012 after working at Silicon Valley startup Loopt Inc. and as an adviser to mobile-video service Vuclip Inc., also has been involved, they said.

Amazon is trying to add to the value of its Prime membership, which in addition to unlimited shipping has been expanding access to an increasing amount of music and video content for subscribers.

Amazon’s earlier forays in music have had limited success. Its download store trails Apple’s iTunes store by a wide margin -- 63 percent to 22 percent at the end of 2012, according to NPD Group -- even though it features many albums and tracks at a discounted price. The company also has offered a cloud-storage program so customers can save all their songs on Amazon’s servers and access them from any device, which hasn’t been widely adopted.

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