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Yahoo Music: Back to Basics

yhoo rnwkRather than pulling the plug after MTV’s Urge music failed to catch on, Viacom (parent of MTV Networks) withdrew from the music subscription business by merging Urge with Real Networks’ Rhapsody and retaining 49percent of the joint venture.  Now, on a smaller scale, Yahoo is doing similar with their Music Unlimited subscription service. Yahoo Music Unlimited, will now be managed by Rhapsody America. Yahoo Music will refocus on providing features for their web traffic.

The strategic relationship announced with Real Networks today will be implemented over the next few months. During that time, Yahoo Music Unlimited subscribers will be converted over to Rhapsody.  The exact details of how that will work, and whether Yahoo’s customer’s will be grandfathered into their lower subscription rates has not been disclosed.  One detail that has come out: customers who have prepaid for a full a year will have the opportunity for a refund.

The failure of Music Unlimited was largely due to two factors.  The first was its subscription-based business model.   Consumers have been accustomed to either hearing music for free (radio) or paying to own it outright (CDs and downloads). The idea of paying for access but not ownership, though accepted as a niche, hasn’t been widely adopted.  (Real Networks music business earned $37.7m for the quarter ended October 31, 2007.  That suggests approximately 2.5 to 2.8m subscribers).   

Like other stores, Music Unlimited was also a victim of Digital Rights Management technologies.  (Up until the past year, all music, including that offered via the Yahoo service, was encrypted and could only be played on certain devices.   This inability to sell to iPod owners and other customers partitioned the market.  It meant, from the start, Yahoo could only sell the service to a small fraction of the marketplace).

While the few customers commenting on the Yahoo blog were not happy to be sold to Rhapsody, the decision to exit the business was the right one.  Currently,  more than 25m people visit Yahoo’s music sites per month.  If the company is going to compete, they need to offer services that appeal to a majority of that group. The Music Unlimited service was a niche service selling to small subset of the market.  It didn’t provide sufficient value. 

In a blog post, Ian Rogers, VP of video and music applications, emphasized that the decision should not be interpreted as a retreat from online music.   Just the opposite, Yahoo is moving ahead but changing their approach. 

The new Yahoo music strategy is to emphasize the Internet and keep Yahoo as a destination by providing innovative features and tools that will enhance the online music experience. They are going back to drawing a crowd and reaping advertising dollars instead of trying to sell a service.

It “is about focusing in the right places,” Rogers said.

Supporting this strategy shift, Yahoo also announced today that they’ve purchased FoxyTunes. FoxyTunes is a browser toolbar that adds media player controls to Firefox or Internet Explorer.  As an “open” tool, it gives users the ability to control more than 30 different music players from iTunes to Pandora, all without leaving their browser.  It’s almost a universal remote control for your media player of choice.

More small acquisitions of web-centric tools that enhance music discovery or add community features may follow.

Larger deals, or the much rumored DRM-Free music store could happen as well, but it is not likely any major long term deals, with the record labels or others, will be signed until the outcome of Microsoft’s takeover offer is decided.

Further financial details of the deal haven’t been disclosed at this time.


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