The announcement is the latest in a series of deals this week attempting to push online music into new territory--making consumers pay. Now that the courts have forced the maverick Napster to restrict its file-sharing service of copyrighted songs, the labels are quickly creating businesses centered on selling digital music on the Web.
The Yahoo-Duet deal is significant partly because it sets up rival alliances of Internet and record-label heavyweights. Earlier this week, RealNetworks, AOL Time Warner's Warner Music Group, EMI Recorded Music and Bertelsmann's BMG Entertainment banded together to form a subsidiary dubbed MusicNet, which will create a subscription service as well. AOL Time Warner's America Online division plans to offer MusicNet's service to its members by summer.
Executives behind Duet and MusicNet have stated their intention to include music from as many labels as possible. But no one has given strict assurances that MusicNet and Duet will work together, which could bode poorly for the labels.
"Neither of them will stand alone with a half catalog available," said Aram Sinnreich, an analyst at Jupiter Research.
The growth of online music in the post-Napster world continues to hinge on the record labels, the owners of copyrights to songs filling their extensive libraries. The labels have reformatted a fraction of their song vaults for downloads and have delved into ways to sell them online.
Wednesday, for example, MTVi and RioPort said they would begin selling songs and albums from all five major labels via downloads.
Despite the flurry of partnerships, legislators have charged the labels with heel dragging. The Senate this week convened a hearing featuring testimonies by recording artists, record executives and online music executives to determine to what extent the labels will let music grow on the Internet.
But the real challenge lies with consumers, who up to now have been swept up by the full-blown accessibility of Napster. The big question is whether they will readily exchange free for fee.
Yahoo would benefit greatly if the subscription service took off. The company has been under tremendous fire because of slipping revenue from cutbacks in online advertising spending. It has been trying to introduce more "premium" services that charge visitors fees for access.
Adding a subscription service would help Yahoo increase its non-advertising revenue, which, in the eyes of Wall Street, would be a huge benefit for the company.
Shares of Yahoo surged Thursday after Lehman Brothers analyst Holly Becker published a note that indicated the ripe opportunity to buy Yahoo shares at their low price.