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Yahoo pulls the plug on its unlimited download subscription service

Yahoo, though some people may not realize it, actually has diverse online music offerings.  Originally based on the acquired Launch music service, the service has grown into a modestly successful business, which offers over 2 million songs. 

The site, according to Yahoo, was the highest ranked music site in terms of audience reach and time spent on site for part of last year.  Obviously its competitor iTunes is by far the industry leader, but Yahoo has been relatively competitive with offerings from Amazon or other online content providers like SpiralFrog.

Despite its strong focus on its music program, Yahoo has fallen on tough times business-wide, which have forced it to reevaluate its business.  First came the announcement of 1,000 layoffs.  Now the latest casualty is one of the pillars of its online music business, Yahoo! Music Unlimited.

Yahoo has reached a deal with RealNetworks Inc.'s Rhapsody to promote the service on site, possibly undercutting its own offerings.  The full terms of the deal were not disclosed.

As part of the deal Yahoo will migrate its Yahoo! Music Unlimited customers to Rhapsody.  Yahoo! Music Unlimited was a service offered through Yahoo Music, which allowed customers to pay a monthly access fee of between $5.99 to $8.99 to gain unlimited access to a library of over 2 million songs.  The transfered customers will continue to pay their old rate, which may anger current Rhapsody customers, which pay $12.99 for unlimited access to Rhapsody's catalog of millions of songs (Rhapsody is rather non-specific about exact numbers).

Rhapsody currently has 2.75 million subscribers and it looks to grow this user base by adding a portal on Yahoo and migrating Yahoo customers.  Senior portfolio manager for Hardesty Capital, David Stepherson, commented on the move both by adding disparaging remarks about the state of Yahoo's current service and praising Yahoo for making the right move.  He stated, "On the surface, this is great for Rhapsody, because it gives them a million of new peepers that they never had before."

He continues, remarking on the fact that move allows Yahoo to remain tied in the business, "[Adopting a Rhapsody on-site portal]
makes sense for Yahoo.  Their online music business was a joke; there wasn't anything to it. I look at it as more a bolt-on service they need to have. They're in front of a lot of customers, and you have to offer something. It's really a necessary component if you're going to be the front end of any search engine."

With the move Rhapsody customers will find their new homepage is Yahoo, a move that is sure to please Yahoo and incense Google.

Rhapsody and Yahoo both use DRM for most of their tracks, though bother offer select tracks DRM-free

Yahoo did make a minor move to expand its online music offerings in the same timeframe, acquiring FoxyTunes, who make plugins to control music players.  Their main software plugin allows control of over 30 common models.  The site interfaces with the player to provide lyrics, videos, and artist biographies based on the currently playing track.

Yahoo is also looking to explore opportunities in the world of advertising subsidized free online music. 
Scott Moore, Yahoo's head of media, said, "We already have a very significant streaming ad-supported business and that's something that I'm particularly interested in continuing to expand.  In terms of downloads, that's another area where I'm not quite ready to talk about yet, but we're very interested and we're exploring our opportunities."

The music shakeup comes mostly under the radar as Yahoo is in the midst of talks with Microsoft over a buy-out.  The talks heated up with resignation of key vocal opponent, Yahoo board Chair and former CEO, Terry Semel.  Despite being overshadowed by these major events, the new Rhapsody and Yahoo deal promises to have significant effects on both companies and the online market.




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