The online music market battle is heating up all over again. Just when you thought things had settled down, along comes Yahoo with its Yahoo Music Unlimited service offering unlimited downloads from a library of 1 million songs for $6.99 per month.
Consider the market muscle that Yahoo has and that Napster and RealNetworks charge $15 per month for similar services. You don’t need a degree in economics to see that online music selling is going to change dramatically.
What’s the catch with Yahoo Music Unlimited? The catch is you are renting, not buying, the music.
The way Yahoo will enforce its rental scheme is by only offering files encoded in Microsoft’s Windows Media Audio (WMA), which includes a Digital Rights Management (DRM) system that no one has so far managed to break. Through the DRM system you will have to log on and synchronize your collection with Yahoo at least once per month, otherwise your music will stop being playable.
But the service can’t be used with iPods or any other device that doesn’t support WMA.
According to several reports, music executives like this concept. That’s because a subscription model allows more people to hear a wider range of music without, in theory, the music copyright holder (presumably them) losing control.
That’s great in theory. Once the Yahoo service gets any traction in the market, hackers will focus on the problem and it will be goodbye to Microsoft’s DRM. The hackers are interested and active.
There’s already a work-around available because – and this is key to the problem that everyone seems to forget in all of these media business schemes – it is all just bits: Just play the music using whatever WMA-compatible player you please while running a tool like Total Recorder and you can grab the bits as they pass through the audio subsystem.
Anyway, assuming that you aren’t going to “steal” the music, the Yahoo Music Unlimited rental system means that if you want to burn any CDs with the tracks you have downloaded you will have to buy them. Here is where Yahoo really upsets the financial apple cart (or as we will discuss, the “Apple cart”): Rather than the 99-cent price charged everywhere else, Yahoo plans to charge only 79 cents.
This lower pricing per track is really important not just to consumers but also to the competition because it’s going to kick off a bloody price war that could really damage some of the players. Just consider that Napster had about $139 million in cash and equivalents at the close of 2004 and RealNetworks had about $370 million.
Unless these companies reduce their pricing to match or better Yahoo’s, they could easily see their market shares diminish. Following Yahoo’s announcement, RealNetworks’ share price dropped 22% and Napster fell more than 30%.
But what about Apple, you ask? Its iTunes service is the 800-pound gorilla of the online music business and obviously the company’s cash reserves are rather greater than the other players (as of December, Apple had $6.5 billion in cash, cash equivalents and short-term investments) and even its share took a 3% hit on the Yahoo news.
This makes sense, as the potential affect of Yahoo Music Unlimited on iTunes could be significant. The Yahoo service is not only less expensive per track but also lets you download and listen to any amount of DRM-controlled music you please, a far better deal as far as consumers are concerned.
Unless they can change their business models, Napster, RealNetworks and even Apple stand to lose their relevance to the online music business. Despite their endless whining, griping and posturing, the record companies (along with consumers) will be the ultimate winners. There is no justice.
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