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Yahoo to launch new flagship music service

Community, music-sharing are key in Web giant's new subscription plan, due this week, sources say.

Yahoo plans to launch an early version of a new flagship music service this week, in hopes of capturing some of the online music momentum now held by Apple Computer, sources familiar with the plans say.

The service, which sources say is expected to be released Wednesday, is built in large part around a monthly subscription plan similar to those now offered by Napster and RealNetworks, allowing customers to download music onto their portable devices.

But Yahoo also has spent considerable time building links to its other products, such as the company's popular instant messaging application, with the aim of making community and legal music-sharing among subscribers a core part of the service.

News.context

What's new:
Yahoo plans to launch an early version of a new music service this week in an effort to take on Apple's iTunes.

Bottom line:
Song-sharing and the community aspect of the Web giant's new subscription plan are key--and could change the market dynamics of the online music business.

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Record label executives who have seen the service, which is in part based on wholesaler MusicNet's technology, say the community aspect in particular shows a promising evolution for the online music business.

"They've unpacked the opportunities and social aspects of the peer-to-peer environment, taken the best aspects away from that, and put them back into their environment," said one top record label executive familiar with recent versions of the service, who asked not to be named.

Yahoo and MusicNet each declined to comment on the potential release of the service.

Yahoo's new entry could help change market dynamics that have tipped overwhelmingly toward Apple, which now controls about 70 percent of both the MP3 player and digital song download markets.

Yahoo has a nearly unparalleled reach, with more than 300 million users worldwide, and has already developed a loyal base of listeners who use its Launch music video and Web radio service. Indeed, record label executives say Launch can already be as important as traditional radio when debuting a new album.

Much will depend on the marketing muscle put behind the service, however. Other giants, including Sony, Virgin Digital and Microsoft, have launched their own iTunes competitors, and none have so far gained substantial traction in the market.

Apple's iTunes, by contrast, has sold more than 400 million songs in the two years it has been in operation. On Tuesday, it opened four new stores in Denmark, Norway, Sweden and Switzerland, bringing its presence to 19 total countries around the world.

Yahoo has already dedicated substantial resources to its music business, however.

The Web portal bought a small digital music company called Mediacode in December 2003. It later spent $160 million to purchase Musicmatch, one of the most well-established MP3 software companies, which also offers its own 99-cent download store and a monthly subscription service.

More recently, sources said Yahoo is developing its own audio search engine aimed at finding downloadable songs and music data around the Net.

"People are much more likely to react and be receptive to music recommendations that come from friends and contacts."
--Mike McGuire, analyst, GartnerG2

Despite the string of purchases, the company has been working to build its own subscription service along with wholesaler MusicNet. That is the service slated to launch this week.

Like other recent entries from Napster and RealNetworks, Yahoo's service will be based in part on Microsoft's Janus technology, which allows music from monthly subscription plans to be transferred onto some compatible MP3 players. Those songs will not work with Apple's iPod, which does not support Microsoft's technology.

Sources say the service will also be tied into the Yahoo Messenger service, allowing subscribers to chat and share playlists with each other while they're on the computer. Some elements of the service may be aimed particularly at teenagers, who avidly use online social tools to explore new music, with a pitch to parents indicating that Yahoo Music is a safe, legal way to share music, sources noted.

Other subscription services also have moved toward community tools, though without the built-in base of the Yahoo audience. Napster allows subscribers to browse each other's playlists, while RealNetworks has integrated playlist blogging tools into its Rhapsody service. Yahoo's own Musicmatch offers a "send to a friend" feature, which lets even non-subscribers listen temporarily to songs on shared playlists.

Analysts say Yahoo has the potential to make a splash in the market, particularly if it uses the instant messaging link to full advantage. It will face the same hurdle as its predecessors in explaining monthly subscriptions to customers largely familiar with iTunes' 99-cent downloads, however.

"People are much more likely to react and be receptive to music recommendations that come from friends and contacts," said GartnerG2 analyst Mike McGuire, cautioning that he had not seen the service. "But in the end it's going to come down to the offering, and whether they can create that compelling marketing message that explains why paying for access is better than paying for downloads."

Yahoo has pushed back its planned launch dates in the past, and sources cautioned that the expected Wednesday release could also be delayed at the last minute. The release is likely to be a beta, rather than a final version.