Yahoo Launches Subscription Music Service

Yahoo Inc. (YHOO) on Tuesday said it was launching a new online music subscription service, aggressively competing against providers such as RealNetworks Inc.'s (RNWK) Rhapsody and Napster Inc. (NAPS) with lower pricing.

Yahoo said it was offering the service with an introductory price of $4.99 per month for an annual subscription, or $6.99 on a monthly basis. The service, available May 11, lets fans play tunes from a catalog of more than one million songs, transfer tracks to portable devices and share music with friends through Yahoo! Messenger.

Rivals Napster (search) and Rhapsody provide subscribers unlimited streams on demand and other features for about $9.99 a month. Both also recently added portability capabilities to their services, charging customers about $15 a month for subscriptions, including that new feature.

"Yahoo's clearly putting big pricing pressure on folks like Real and Napster. Neither have the advertising leverage that Yahoo has, so this has the potential to be highly disruptive to any digital music subscription service, particularly Napster since its a pure-play digital music company," said PJ McNealy, an analyst with American Technology Research.

The shares of Real and Napster fell in after hours trading on iNet. Real's stock fell nearly 11 percent or about 80 cents to $6.50 after closing at $7.30 a share on Nasdaq. Napster fell about 15 percent, or $1 to $5.35 a share after-hours after closing on Nasdaq at $6.35 a share.

Napster could not be reached for comment.

RealNetworks (search) last month unveiled a free version of its service, offering users 25 songs streamed on demand, Internet radio and other features in the hope of luring consumers to its other fee-based services.

"We just started giving away music for free on Rhapsody and there's more movement to give consumers affordable access to music. Yahoo's jumping into the subscription market is a complete validation for RealNetworks," said a spokesman for Real.

By linking the service to its instant messaging application, analysts said Yahoo is aiming to make legal music- sharing among subscribers a focus of its offerings.

Yahoo's service also enables fans to buy downloads, listen to commercial-free Internet radio stations and access their subscription service from any Internet-connected computer.

The subscription service is the latest push by the Sunnyvale, Calif-based Web giant to bolster its music properties under the newly rebranded Yahoo! Music division in hopes of capitalizing on the growing market for online music now led by Apple Computer Inc. (AAPL) with its a la carte music purchasing service and popular iPod (search) players.

Yahoo last September bought San Diego-based Musicmatch (search), which offers the popular Musicmatch Jukebox, online radio stations and a song download service, for $160 million.

Yahoo is also reportedly developing a search engine for finding downloadable songs and music data from across the Internet, which it plans to introduce within the next couple of months.