Yahoo! Takes Center Stage With Music

"We are committed to being at the forefront of the rapidly growing online music segment," said Lloyd Braun, head of Yahoo! Media Group. Braun, a former ABC network executive and one of the few people to receive the honor of having a Seinfeld character named after him, said, "Yahoo! Music Unlimited draws on the best of Yahoo! to provide personalization and community features unlike anything else in the marketplace."

Yahoo!'s clearest advantage, at least for now, is its low price, which may become the first shot in a pricing war for online music. Yahoo!'s annual subscription rate of $59.88 is a third of the $179.88 rate charged by RealNetwork's Rhapsody, and the 79 cents it charges per downloaded track is a dime cheaper than Rhapsody's standard rate.

Critics of Rhapsody and Napster have often pointed out that, at 79 cents a song, downloaded tunes aren't much cheaper than CDs, which almost everyone but the music labels agree are overpriced. At that rate, an album with 20 songs is $15.80, or the cost of most CDs in stores. Smaller music sites, like eMusic, charge about a quarter per song.

"Yahoo!'s entry is not a surprise, but the pricing of its service is," says Sasa Zorovich, an analyst at Oppenheimer, who lowered his forecast Wednesday for RealNetworks' EPS this year to break-even from four cents a share. "RealNetworks and Napster are likely to lower their price offerings to match Yahoo! Otherwise, the difference is just too big for consumers for RealNetworks' and Napster's services to remain competitive."

With hundreds of millions of users already visiting its network of sites each month, Yahoo! could use economies of scale to push music prices down even further, if others match its lower prices. And it could offset some of the costs for music labels by giving them more attractive advertising rates on the rest of its site.