With the launch, Yahoo joins a number of its competitors in trying to attract music-hungry Net users. In June, America Online acquired Internet radio company Spinner and music technology firm Nullsoft for $400 million. Earlier this month, Lycos snatched up MP3 player Sonique when it acquired parent company Internet Music Distribution.
The acquisition built upon Lycos's previous efforts; in February, it launched MP3 Search, a service that allows users to find songs in the MP3 downloading format. Yahoo was in talks to buy Sonique in July, but the deal fell through.
Yahoo Digital allows Web surfers to listen to music from popular recording artists and buy songs that can be downloaded and stored on a user's hard drive. Users also can watch and listen to Internet broadcasts such as concerts and music videos and view on-demand video channels.
In addition, in about a week, users will be able to self-publish and sell their own music online, Yahoo said. Other partners include Beatnik, which lets users remix songs on the Web; EMusic, which allows users to sample and buy individual songs or entire albums in the MP3 format; and Liquid Audio, which encodes songs into its proprietary format for downloading.
Yahoo Digital flexes the muscles of Web media programmer Broadcast.com, which Yahoo acquired in April for about $5 billion. The unit, now called Yahoo Broadcast Services, broadcasts live events for general consumers and private corporate events.
Yahoo plans to use Broadcast.com's media streaming services throughout its network of sites, according to Tim Brady, Yahoo vice president of production. The idea is to beef up the sites' content with audio or video. For example, Yahoo Sports users can listen to sports news, or Yahoo Finance users can listen to company conference calls during quarterly earnings announcements.
Brady added that Yahoo will also use GeoCities' home page-building features in Yahoo Digital. "GeoCities and Yahoo Digital's integration will get tighter and tighter in the coming months," he said.
With the new service, Yahoo adds another feature to its ever-increasing list of "vertical" sites, which also include finance, sports, news, and shopping. Although rapid build-out of new content areas is viewed favorably by investors, some analysts warn that Yahoo may be spreading itself thin, offering content in too many subjects.
In the long term, that could cause Yahoo users to opt for more content-specific sites instead of a general information source, according to Derek Brown, an equity analyst at investment bank Volpe Brown Whelen.
"Ultimately, the specialized destinations are going to be inherently more valuable than distribution itself," Brown said.
As an offline example, Brown compared David Letterman's departure from NBC to CBS. Letterman fans followed him because "CBS recognized the value was in the content, not in the distribution," he said.
Yahoo's move comes as the Web is becoming a significant force in the music industry. Consumers increasingly are turning to the Web not only to read about artists and buy CDs, but also as a place to get music directly. Users download songs onto their hard drives and can play them back or transfer them onto portable devices such as Diamond Multimedia's Rio.
Portals such as Yahoo are arriving relatively late to the online music party. Sites such as MP3.com and the Ultimate Band List have become popular online music destinations. Record companies, such as Sony Music, Universal Music, and BMG, also are planning music destination sites. Media giant Viacom plans to launch a music hub site as soon as next month that will build on the popularity of its music properties MTV and VH1.
Marc Geiger, a music industry veteran and cofounder of Artistdirect, which owns the Ultimate Band List, said Yahoo's entry into any space is taken seriously by smaller players, his company included. Web giants can use their widespread audience and reach to promote a service like Yahoo Digital throughout their sites.
However, "the question is focus and execution" for a larger, more general site to succeed in a specific category, he said.