Yahoo Takes on Apple’s iTunes With New Subscription Service; Who’ll Win Out?

Internet search giant Yahoo Inc. joined the ever-growing world of online music service Tuesday with its announcement of a new music subscription service, taking direct aim at Appleis iTunes Music Store (iTMS).

The Yahoo Music Unlimited service will cost US$6.99 a month, or $59.88 for a full-year subscription, and allow users unlimited downloads from a library of more than 1 million songs. Users will then be able to play songs on their computers or on digital media devices that use Microsoftis Windows Media format. As a result, the service will not be compatible with Apple line of iPod devices.

The service began late Tuesday in "beta" form and is available for U.S.-based customers only. Users will be able to share music with friends via Yahoois Messenger chat service and personalize music libraries.

Yahoo joins a number of other competitors in the online music subscription business, including Napster and RealNetworks. The major difference between Yahoo and its rivals will be its pricing. Napster charges $14.95 a month for its Napster To Go offering, while Realis Rhapsody To Go service costs $179 a year, or just under $12 a month.

All the subscription services are taking aim at Appleis iTMS and its 80% market share dominance. On Tuesday, Apple said it has sold more than 400 million songs through iTunes since launching the service in April, 2003 and opened iTunes stores in Denmark, Norway, Sweden and Switzerland, bringing its total number of worldwide online music stores to 19.

The biggest difference between the new Yahoo service and iTMS is that Apple charges 99 cents a song for permanent downloads from its 1.5-million-song catalog, while Yahoo will "rent" the access to its library as long as the consumer continues to pay his monthly fee.

Whether subscriptions will win out in the end is up for debate. Apple co-founder and CEO Steve Jobs believes they will fail. "The subscription services are not succeeding," Mr. Jobs said late last year. "People want to own their music, not rent it." He compared the music download business to the video market, where he said people watch their favorite movies 5-10 at most, while people listen to their favorite songs again and again. "Purchasing music is an ingrained thing," he said, citing traditional music sales of vinyl, cassettes, and CDs.

But Joe Wilcox, an analyst with Jupiter Research, believes Mr. Jobs is overlooking the changing landscape.

"Steve is right that traditionally people have bought music," Mr. Wilcox told The Mac Observer. "But that is changing. Todayis teenagers are learning that they donit have to own something to actually use it. In our research, teenagers have told us they would rather not have to buy something if they can still have access to it and its cheaper."

David Card, another analyst with Jupiter Research, believes Apple has nothing to worry about for the foreseeable future, but that subscriptions will overtake permanent downloads by 2009. In 2005, digital-music revenue will reach $500 million with downloads taking about $300 million of the pie. Mr. Card said subscriptions will overtake downloads by 2009, when the market will hit $1.7 billion in revenue, with $900 million for subscriptions alone.

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