Yahoo said Tuesday that it is acquiring digital music specialist Musicmatch for $160 million in cash.
The Sunnyvale, Calif.-based company said the buyout would help it expand its presence in the simmering online music space, where Apple Computer's iTunes service has proven the segment's potential by selling over 125 million songs, typically at 99 cents apiece. CNET News.com first reported acquisition talks between Yahoo and Musicmatch in February.
"Yahoo is committed to being a major player in digital music," Terry Semel, chief executive of Yahoo said in a statement Tuesday. "This combination bolsters our strategy to capture the largest audience of consumers as they make the shift to digital music."
But the company faces formidable competition. Besides early leader Apple, the field also includes a recent entry by software giant Microsoft, a feisty presence in RealNetworks, a reinvigorated Napster and low-price specialist Wal-Mart Stores.
Yahoo said the Musicmatch deal is one of several new initiatives in which it will invest to expand its music portfolio this year.
Founded in 1997, Musicmatch markets digital music software, dubbed Jukebox, and maintains a download service that boasts over 225,000 subscribers.
Included in those numbers are customers of Musicmatch On Demand, a subscription service that offers streaming music, and the company's online music download store. Musicmatch, which is based in San Diego, says that approximately 700,000 songs are available through its online catalog.
Jumping into music downloads signifies a switch from Yahoo's past music strategy, which has focused on streaming audio and video through Launch, a subsidiary that Yahoo bought for $12 million in 2001. Yahoo also distributes the Napster music service, which lets customers buy music downloads and sign up for subscriptions.
Industry analysts said that while the Musicmatch acquisition helps to round out Yahoo's array of digital music services, it will be hard for the company to compete with more established players such as Apple, since the computer maker markets both downloads and one of the most popular devices for playing tunes, the iPod.
"The challenge for Yahoo is how to differentiate, since all the music services basically offer the same content, in the same format, for the same price," said Michael Gartenberg, analyst with New York-based JupiterResearch. "Since Musicmatch doesn't support iPod any more, you wonder how it can maintain itself as a proprietary service."
Gartenberg pointed out that despite all the hype in computing circles, digital music downloads still represent only a small fraction of overall music industry sales. Jupiter has projected that music downloads will become an $800 million business by 2009, while the music industry racked up over $11 billon in CD sales in 2003 alone.
In July, Musicmatch launched a new version of Jukebox that added a search engine for browsing tracks and that also lets customers rank music searches by popularity. The feature was designed to let people buy and centrally manage music that's downloaded, recorded from CD or streamed on demand. Musicmatch allows subscribers to share complete playlists or individual songs, which recipients can listen to up to three times without officially subscribing to its download or streaming services.
Musicmatch currently charges $9.95 per month for its on-demand music service, offers individual downloads for 99 cents per song, and offers an online radio service free of charge.