Seattle-based Amazon reached licensing deals with most of the top independent labels and major recording companies Sony and Warner Music, but failed to reach a deal with top-ranked Universal Music Group.
That means that while the service will feature artists like Justin Timberlake, Bruno Mars, Bruce Springsteen, Pink and Madonna — it will lack music by Universal stars such as Katy Perry, Taylor Swift and Jay-Z.
The service also won't have many new releases — and for major artists that could mean music that has been released within the last six months.
Universal didn't reach a deal with Amazon because it disagreed with the value of the lump sum royalty payment on offer for the albums in question, according to two people familiar with the matter.
One person said the royalty amounted to about $40 million to $50 million for the entire music industry over two years.
Labels other than Universal concluded the amount would be equal to or better than a per-play streaming royalty, given how often the songs were played on other digital services, the person said. Both people were not authorized to speak publicly and spoke on condition of anonymity.
Amazon will recommend songs to customers who have bought music from it in the past with offers to complete albums if they're available on the service. It has also hired experts to compile hundreds of playlists that are 20 to 50 songs in length based on genre or mood that are easy to download before getting on the subway or on a plane, Boom said.
Amazon's strategy has long been to plow the money it generates back into its business, focusing on growth. The tactic results in thin margins, but investors largely give Amazon a pass for forgoing a strong profit for growth.
The company boosted its Prime 2-day shipping membership program annual fee from $79 to $99 in March to offset higher shipping costs. Since then, it has been adding services to Prime membership to attract new customers and encourage existing customers to spend more.
It started a service that lets Twitter users add Amazon.com products to their carts without leaving the social media site. In April, it launched Prime Pantry, a grocery delivery service for Prime members. The same month, it introduced Amazon Fire, its first set-top video streaming box.
Business Writer Mae Anderson contributed to this report from New York.