Is Amazon About to Crash Apple's Beats Party?

Sources say Amazon will soon launch an ad-free streaming music service that will be free for Prime members.

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Cheerful teen dancing and moving along with music on her smart phone and headphones
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Apple (AAPL) may be spending $3 billion for the Beats Music premium streaming service at the worst possible time. Amazon.com (AMZN) -- no stranger to foiling Apple's plans for world domination -- is reportedly about to make a move that could upend the digital music market.

Five industry sources have told Buzzfeed that Amazon will introduce a new streaming music service in a few weeks. On one hand, Apple shouldn't worry. Tech giants have struggled to make a dent in this booming market. On the other, those sources claim that the new platform will be both ad-free and available to the e-tail giant's 20 million Amazon Prime members at no additional cost.

There is a catch, of course: Amazon's service will reportedly be restricted to songs and albums that have been out for at least six months. That makes sense. Record labels wouldn't dream of letting Amazon undercut their efforts to sell downloads of new songs when fan interest is at its highest. However, as download sales in general sputter and the game becomes a matter of generating streaming royalties, the bigger driver has become the sheer volume of plays. The more expensive service doesn't have to win, and if Amazon has its way, it won't.

Apple's iTunes Music Store remains the top dog in digital downloads, but with download sales slipping, the new battlefield has become the streaming market, where Spotify and Pandora (P) dominate. The two services combine for more than 100 million active listeners and more than 13 million paying subscribers.

Apple was already destined to have a tough time taking them on with iTunes Radio and now Beats Music. Now with Amazon offering even a restricted catalog free with Prime accounts, it will be that much harder.

A Familiar Tune

This isn't the first time that Amazon undermined Apple by undercutting it on price. Apple's iPad was all the rage when it was introduced four years ago, but it's no coincidence that iPad sales are starting to slip now, when Amazon is flooding the market with cheap Kindle Fire tablets.

Amazon is selling Kindle Fire devices for as little as $99, and while Apple's problem is the growing proliferation of cheaper Android tablets in general, it's fair to say that Amazon's ability to sell its gadgetry at or near cost stings. Amazon expects to turn a profit through its digital ecosystem at a time when Apple isn't ready to let go its generous markets on hardware.

Amazon Prime members pay $99 a year for complimentary two-day shipping on Amazon-warehoused goods. They also get monthly Kindle e-book rentals and access to a growing catalog of streaming video. According to Buzzfeed, this digital music service that will launch either later this month or in July.

If Apple thought that it could build on the 250,000 Beats Music subscribers paying $10 a month to enjoy unlimited on-demand tunes, it will now have to compete for listeners' attention with a pretty loud value proposition blasting from Amazon's boom box.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Amazon.com, Apple and Pandora Media. Try any of our newsletter services free for 30 days. ​

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itacurubi

Amazon! Amazon doesn't even know how to make money.

June 03 2014 at 6:33 PM Report abuse -1 rate up rate down Reply