Yahoo is taking dramatic action to resolve problems with Yahoo Music Unlimited, its premium subscription service.
In a posting to Yahoo's music-related blog on Monday, Ian C. Rogers, general manager of Yahoo Music, said that every month about 25 million people visit Yahoo for music-related information. But few of those visitors sign up for the premium service.
"The fact of the matter is that building a great premium music service takes a huge amount of resources and effort," Rogers wrote, "and it was taking energy away from our important main offerings. Relatively speaking, a small percentage of [visitors] use Yahoo Music Unlimited, yet a large portion of our resources were being poured into this service. It was clear to us that we needed to make a major strategic shift."
Rhapsody and FoxyTunes
As a result, Rogers wrote, Yahoo is discontinuing Music Unlimited and transferring its subscribers to Real Networks' Rhapsody music-subscription service. Subscribers will be able to transfer their music catalog and will continue paying the same price ($9 per month) that they currently pay for Music Unlimited. But once their current contract expires, Music Unlimited subscribers will be charged the same as existing Rhapsody subscribers ($12.99 per month).
The closing of Music Unlimited leaves just three music-subscription services on the Internet: Rhapsody, Napster and Microsoft's Zune Pass. There was no immediate reaction from Microsoft, which bid $31 per share, or $44.6 billion, for Yahoo on Friday.
An intriguing element to this announcement is that Real Networks and Microsoft have their own complicated history. Founded by Rob Glaser, a former Microsoft employee, Real Networks sued Microsoft a decade ago for antitrust violations. After eight years of expensive litigation, Microsoft settled by paying Real Networks $761 million.
Rogers assured Yahoo music fans that the company is not lessening its support for online music. "Au contraire," Rogers said. "It is a major strategy shift, but we're still investing in our music business, as evidenced by my second bit of news: our acquisition of FoxyTunes."
FoxyTunes is a plug-in for Internet browsers, including FireFox and Internet Explorer, that allows users to control a wide range of media players from their browser. Neither Rogers nor Yahoo revealed how much the company paid for FoxyTunes.
The Portability Problem
Yahoo's purchase of FoxyTunes does not mask the overarching question: How interested are consumers in subscription-based music services with limited portability? Rogers alluded to this issue when he noted that Rhapsody has developed partnerships with TiVo, Sonos and Control4 that allow subscribers to listen to music in various rooms. There are also a handful of MP3 players designed to allow subscribers to listen to downloaded Rhapsody content on the go.
However, Real Networks has only signed up 2.7 million subscribers, a fraction of the online music audience. Even with the addition of Yahoo's Music Unlimited subscribers, it is not clear that Rhapsody will have the critical mass of listeners needed to sustain subscription-based music on the Internet.
Susan Kevorkian of IDC commented, "The Windows Media Technologies-based subscription model has real merit, but has been a tough sell to consumers. Any company in this
space needs to invest in being there for the long haul, and Yahoo wasn't prepared to do that given its other challenges."
She added, "This announcement isn't likely to affect Microsoft's offer but it does add uncertainty to a Yahoo-branded music strategy. If the deal goes through, Microsoft will need to carefully consider any further strategic changes to its media services to avoid alienating consumers."