Amazon quietly unveils streaming music service

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Amazon launched a new streaming music service on Thursday as part of its $99 Prime subscription service that includes free video streaming and free delivery.

Overnight the company launched a web page seemingly announcing the new service. "Prime Music" would offer unlimited, ad-free streaming, free with Amazon Prime, according to the site. The company did not provide further information.

Amazon's head of digital music, Steve Boom, told Reuters that because the service is free with Prime, it offers more bang per buck than stand alone streaming services that can cost $10 a month.

"If there area few tracks you want to buy, the cost of doing that in our store will be dramatically less than paying $120 a year for, frankly, a lot of music people don't listen to," Boom said in an interview with the news agency.

The variety of music offered is expected to be wide but not deep, and would not include the newest hits given a six-month delay after albums are launched. One industry insider called the new service "playlist heavy."

Amazon has not responded to requests for comment, but a number of industry sources confirm that deals are inked and the press releases have been written. Both Sony Music and Warner Music Group have signed deals to license their music – neither have commented- but Universal Music Group, the world's largest music label, is not on board.

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There's no question that Amazon is already a huge player in the music business, selling music downloads. But with Apple spending $3 billion to buy Beats and its efforts behind iTunes Radio, and Google with its Play Music Store in reported talks to buy music service Songza, Amazon is under pressure to do more.

One source said that while Amazon's launch of streaming music for prime is "certainly not a game changer, it's a step in the right direction." Labels and artists are particularly interested because the 'Prime' service is high visibility on Amazon. That, coupled with the fact that there will be a limited amount of music presented mostly in a playlist format, could drive more music downloads.

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How much will music labels be compensated? One source said all labels will share a royalty pool that's as big as $40 million to $50 million annually. When the compensation is parceled out, the rates are expected to be as good, if not better than other services.

As for Universal Music, while Amazon has offered the music giant a deal, sources tell me Universal found the compensation too low for its A-list artists including Taylor Swift, Lady Gaga, and Elton John. The unresolved negotiation between Universal and Amazon puts the music label in the same camp as publisher Hachette and Warner Brothers, which have both been in a stand-off with Amazon over fees.

—By CNBC's Julia Boorstin