Yet another iTunes competitor is going down the bit bucket--Yahoo will close its Music Unlimited service and move its remaining subscribers over to RealNetworks' Rhapsody later this year.
Yahoo explained the move yesterday in a post on its corporate blog:
Around 25 million people visit Yahoo! Music each month. Relatively speaking, a small percentage of those use Yahoo! Music Unlimited, yet an large portion of our resources were being poured into this service. It was clear to us that we needed to make a major strategic shift.
The post goes on to say that Yahoo subscribers will be able to "easily take their music catalogs and migrate to Rhapsody." But a press release at Real's site notes that these people will wind up paying more for "a limited time" after they're moved over to Rhapsody. Where Yahoo charges $8.99 a month for unlimited, "tethered" downloads to a computer (or $5.99/month if you prepay for a year), Rhapsody's equivalent service costs $12.99 a month.
Yahoo's pricing advantage was even stronger when it launched the service. But as the company ratcheted up its prices, then mysteriously dumped the "To Go" option that allowed copying these rented downloads to certain "PlaysForSure" music devices, Yahoo Music Unlimited had less and less to distinguish itself from Rhapsody and other services.
Some things are still unclear after Yahoo's announcements:
1) Now that the Yahoo Music Jukebox program--which has already suffered from years of neglect--no longer has a reason to live, when will the company put it out of its misery? And how much longer will it take for computer manufacturers to stop bundling this mediocre application?
2) How long will Yahoo wait to take down the "TRY IT FREE" promotional page inviting visitors to sample this soon-to-be-defunct service?
If you subscribe to Yahoo Music Unlimited, I'd like to hear your take on this. Do you feel jilted or relieved?
more...
Yahoo! Music the Latest to Fall on Apple's Sword
The online music subscription service market is shrinking.
The latest company to exit the market is Yahoo!(YHOO - Cramer's Take - Stockpickr), which has decided to move its subscribers to RealNetworks'(RNWK - Cramer's Take - Stockpickr) Rhapsody service.
The market shift underscores a point that Apple(AAPL - Cramer's Take - Stockpickr) CEO Steve Jobs has made all along -- namely that people like to own music and not rent it, a strategy that has paid off handsomely for the iPod.
Yahoo!'s exit leaves only three big players, RealNetworks, Microsoft(MSFT - Cramer's Take - Stockpickr) and Napster(NAPS - Cramer's Take - Stockpickr), remaining in the subscription music game.
Yahoo! said Monday it has partnered with Rhapsody, the digital music service from RealNetworks and Viacom's(VIA - Cramer's Take - Stockpickr) MTV Networks, to replace its music service with Rhapsody's.
In the next few months, Yahoo!'s music subscribers will switch to Rhapsody's digital music service. They will hold on to their existing pricing for a limited time before being charged a new fee. Yahoo! has claimed more than 25 million people visit Yahoo! Music a month, but only a fraction of them pay for the premium subscription service.
Yahoo! and Rhapsody also intend to partner on services like digital downloads -- a move that is unlikely to cause Apple to break into a sweat. Apple said more than 4 billion songs were downloaded last year from its iTunes store.
The deal sets the stage for a potential clash between the Yahoo!-Rhapsody service and Microsoft's Zune subscription product as Microsoft attempts to gobble up Yahoo!. Microsoft made a $44.6 billion, or $31 a share, unsolicited bid for Yahoo! last week.
"One of the problems with on-demand subscription services is that they haven't been able to go beyond a niche audience because most music lovers are on the iPod," says David Card, an analyst with Jupiter Research.
The RealNetworks-Yahoo! deal was about taking a competitor out, he says. "The marketplace is not very crowded now," says Card.
For Apple, the shrinking marketplace for music subscription services comes at a time when investors and analysts worry about the future of the iPod.
In the last quarter iPod sales grew 5% compared with 50% in the year-ago quarter, with growth in U.S. sales nearly flat. Apple has hinted that it will refresh the iPod line and turn it into a wireless mobile platform.
Apple shares closed down $2.10, or 1.6%, to $131.65 Monday. The stock is nearly 35% off from its 52-week high.
Last year, Apple also introduced music free of digital rights management. Since then Amazon.com has started offering DRM-free music in a move that some felt could eat into downloads from the iTunes store.
Yahoo Music's latest move shows Apple may have made the right bet. "Yahoo saw that all the major record labels have moved towards selling music without DRM, which makes it impossible to run a music subscription service," says Phil Leigh, senior analyst, with market research firm Inside Digital Media. "It also shows that the dominant player in the market is iPod and it has set the standards."
The Yahoo-Rhapsody deal also raises not just questions of potential competition in the future between Microsoft's Zune platform and the Yahoo-Rhapsody service but also Microsoft own strategy with the Zune.
"If the Microsoft-Yahoo merger is completed, we believe the integration of the two companies will be a lengthy process and competitive conflicts between Microsoft's online music store, its Zune digital media players and the Rhapsody service will likely emerge but over a longer timeframe," says Ingrid Ebeling, an analyst with JMP Securities in a research note. JMP makes a market in RealNetwork shares.
Shares of Yahoo closed up 95 cents, or 3.3%, to $29.33 Monday, while Microsoft fell 26 cents to $30.19.
For RealNetworks, though, the latest development even in a small market is good news. "This is a good idea for them because this consolidates the monthly music services business and shows Rhapsody from RealNetworks is becoming the market leader."
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