Yahoo! Buys Musicmatch To Bolster Online Music Offerings

The competition arrayed against Apple in the growing online music market is shifting. In a deal valued at US$160 million, Yahoo! announced today the acquisition of one-time Apple partner Musicmatch. Musicmatch makes its self-titled Musicmatch jukebox software that allows Windows users to manage their digital music collections, the same software Apple licensed for its Windows customers that bought iPods before iTunes for Windows was released.

The $160 million buyout is a cash deal from cash rich Yahoo!, and upon completion, Musicmatch will be a wholly-owned subsidiary of the company. Because Yahoo! is public, the acquisition will have to go through regulatory clearance, which Yahoo! expects to be complete during the fourth quarter of 2004.

Musicmatch was also one of the early entrants into the world of legal online music downloads with the Musicmatch Music Store. Using the Windows Media platform, Musicmatch has some 700,000 songs for download, and offers streaming services through free and subscriptions internet radio stations. Musicmatch also operated Dellis online music store, which accompanies the Dell DJ music player. Musicmatch is available for Windows only.

By buying Musicmatch, Yahoo! is attempting to broaden the reach of its online music offerings, which are centered around Launch. Launch is a music destination site that offers videos, downloads, articles, information, and other music-related content. Launch generates revenue through both downloads and advertising, and the addition of Musicmatch to this mix allows Yahoo! to springboard its download catalog, while at the same time giving the company an established jukebox software.

"Yahoo! is committed to being a major player in digital music," said Terry Semel, chairman and chief executive officer, Yahoo! Inc. in a statement. "This combination bolsters our strategy to capture the largest audience of consumers as they make the shift to digital music and supports Yahoo!is goal to give consumers the greatest choice, control and flexibility in how they interact with their music. This acquisition is one of several product innovations and new initiatives in which Yahoo! will invest to build our music portfolio this year and in the future."

In the companyis quest for eyeballs, Yahoo! also says that the acquisition will broaden its reach from 12.9 million music listeners to an "estimated 23 million" listeners. The company cites Nielsen//NetRatingsis August 2004 numbers as the source for that estimation.

While Musicmatch has so far failed to gain significant market share from Apple in the music download market, the purchase significantly bolsters Yahoo!is ability to compete with Apple in this market. The challenge for Yahoo! will be for the company to leverage its traditional strengths in garnering Internet eyeballs, and getting those Internet eyeballs to buy music through Yahoo!, and not Apple.