In a change of strategy that it hopes will knock Apple's iTunes off top spot, Yahoo is set to double the price of its online music subscription service.
Look out Apple
The company launched a trial version of Yahoo Music Unlimited in May, charging £4 per month or a slightly discounted yearly rate of about £34. That service will remain the same price, but will henceforth only allow users to download music to a personal computer, with an option to buy tracks for permanent use.
On 1 November, Yahoo will charge more for downloads to a portable device. The 'to go' service will be £7 on a monthly basis or about £67.27 annually, according to the company.
Yahoo is still cheaper than its main competitors, RealNetworks and Napster, but the move narrows the price gap. Both of its rivals offer databases of music for download on a subscription basis for around £8.50, with additional fees to burn to a CD and 'own' the music.
So far, Apple has been number one in terms of online music sales with its iTunes service, which sells songs 'a la carte' for £0.99, as well as 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 on Wednesday at the 2005 Broadband Music Summit in London.
She warned, however, that the market for the subscription model will mature over the next 10 years. Part of the reason Yahoo started with a low price for its subscription service is because it was competing against free filesharing, 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.
Jonathan Arber, a research analyst with Ovum, said the price change isn't as surprising as the length of time Yahoo kept the lower fee. But the price change will probably not have a huge effect, since the number of users of the full-priced service is likely to be low, he said.
"Yahoo is still competitive because 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.
Earlier this year, RealNetworks said it had about one million subscribers for services offered through Rhapsody, and Napster had about 400,000, Arber said. Yahoo has been cagey about releasing subscriber figures.
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 as the digital music scene is in turmoil, with players 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 this month.
Microsoft is continuing to develop digital rights management (DRM) technology to support subscriptions and software that allows people to transfer music between their personal computers, mobile devices and portable players, said Xavier Bringué, group manager for the Digital Media Division for Europe, the Middle East, Africa and Latin America.
In the short term, Microsoft is not likely to launch its own online subscription service, and will 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 added.