As first reported by CNET News.com, the companies were in discussions for Yahoo to invest in Myplay or to acquire it outright. However, the two companies went their separate ways earlier this week after Yahoo decided to hold onto its wallet rather than spend a proposed $200 million for Myplay.
"The bean counters won over the product people," one source said about Yahoo's decision.
Yahoo and Myplay declined to comment on the failed deal.
The crumbling of the deal comes as Yahoo tries to jump-start its online music strategy. The company has aspired to build more music offerings on its site. Yahoo recently launched its own audio player powered by Microsoft's Windows Media technology.
It has launched several sites that offer music downloads and artist information. Sites such as Yahoo Music and Yahoo Digital offer MP3 downloads, audio and video programming, and articles about artists and videos. The portal giant has also tried using Broadcast.com, which it acquired last year, to provide audio and video streaming programming throughout the site.
However, Yahoo faces considerable competition from rivals such as America Online, which has Net radio station Spinner and MP3 player Winamp under its belt. In addition, AOL will likely own two major record labels--Warner Music and EMI--once it completes its pending acquisition of Time Warner.
Myplay has a relationship with AOL. In March, Myplay announced a deal to integrate its service within Winamp and Spinner. If Yahoo had acquired Myplay, it would have needed to resolve Myplay's contract with AOL, sources said.
Launched in October 1999, Myplay lets people store their CDs online and access those songs and albums from multiple Internet-enabled devices such as computers, cell phones and handheld gadgets.
The service is similar to MP3.com's My.MP3.com because it lets people listen to their music collections. But unlike MP3.com, which let its customers listen to music without uploading it, Myplay requires its members to upload music into digital "storage lockers."