Yahoo Hikes Music Services Rates

Jeremy Kirk, IDG News Service

LONDON-- Yahoo will double the price of its online music subscription service, a change in strategy in the race to knock Apple off its top spot for online music delivery services.

The company launched a trial version of Yahoo Music Unlimited in May, charging $6.99 monthly or a slightly discounted yearly rate of about $60. That service will remain the same price, but will now allow users to download music only to a personal computer with an option to buy tracks for permanent use.

On November 1, Yahoo will charge more for downloads to a portable device. The "to go" service will be $11.99 on a monthly basis or about $120 annually, according to the company.

The move puts Yahoo's price closer but still cheaper than its main competitors, RealNetworks and Napster, both of which offer databases of music for download on a subscription basis for around $15 with additional fees to burn to a CD and "own" the music.

Subscriptions Favored

So far, Apple has been No. 1 for online music sales with its ITunes service, which sells songs "a la carte" for 99 cents in addition to full albums. Apple does not have a subscription service.

But the low margins associated with a la carte sales are driving moves by its competitors to go to subscription-based revenue models.

"We definitely believe that subscription is the model that most people will adopt," said Shannon Ferguson, director of Yahoo Music Europe. Ferguson spoke as part of a panel at the 2005 Broadband Music Summit here this week.

She cautioned, however, that the market for the subscription model will mature over the next ten years. Part of the reason Yahoo started with a low price for its subscription service is because it was competing against free file-sharing, Ferguson said. Research still shows that the vast majority of music downloaded online is pirated.

Ferguson would not say how much the company pays record companies for use of their content.

The price change isn't as surprising as how long Yahoo kept the lower fee, said Jonathan Arber, a research analyst with Ovum Ltd. But the price change will probably not have a huge effect since the number of users of the full-priced service is likely low, he said.

"Yahoo is still competitive in the fact that it's not charging as highly as its competitors but all the indicators are is that it hasn't been particularly successful so far," Arber said.

Competitors Jockey

Earlier this year, RealNetworks said it had about one million subscribers for services offered through Rhapsody, and Napster had about 400,000, Arber said. Last year, RealNetworks claimed it hit a million downloads. Yahoo has been cagey about releasing subscriber figures, the analyst said.

Consumers have been averse to the concept of subscribing to a music service because the downloaded music no longer plays once the subscription lapses. But Ferguson said there are other subscription models that people accept, such as for cable television and mobile phones.

"Fundamentally, it's really not a different proposition," Ferguson said.

Yahoo's pricing change comes amidst a fast-changing digital music scene where players are also waiting to see what Microsoft will do. The software giant does not yet have an online music offering, although it said it would promote RealNetworks' Rhapsody service on Microsoft MSN after the two settled their antitrust case earlier in October.

Microsoft is continuing to develop digital rights management technology to support subscriptions and software that allows people to transfer music between their personal computers, mobile devices and portable players, said Xavier Bringue, group manager for one of Microsoft's regional Digital Media Divisions.

In the short term, Microsoft is not likely to launch its own online subscription service and instead incorporate elements of Rhapsody into its portal, Arber said. But the longer they wait to get into the business "the less share there is for them," he said.

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