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Major labels in talks with Yahoo

Internet music distribution goes mainstream

Yahoo is in discussions with major music labels on the possibility of becoming a subscription-based online music distributor of the labels' content, according to a source familiar with the talks.

The source says Yahoo and the labels are mulling several ideas, including a subscription-based service that would give customers access to an artist's entire catalog. A Yahoo spokesperson says the company doesn't "comment on rumours and speculation."

Three of the "big five" record labels already have affiliations with major Internet companies. In January, America Online agreed to buy Time Warner (and Warner Music Group), which subsequently bought EMI.

And Bertelsmann's BMG Entertainment is a longtime partner with Lycos. In fact, when Terra Networks agreed to buy Lycos last Tuesday, Bertelsmann agreed to offer preferential access to its content to the combined company.

Just two weeks ago, Sony and Universal announced a joint venture to distribute subscription-based music and video content for PCs, set-top boxes and handheld devices. The service, a Sony spokesman said, would include both streaming content and downloads.

The announcement did not address how the two companies would distribute their content. Industry insiders say the Sony-Universal venture is looking for a distribution partner instead of building a separate company, or site, itself.

Others say the two labels have to do something quickly, because the competition has already teamed up Web distribution partners. "[Sony and Universal] need to do a deal with somebody because they won't have nearly enough reach otherwise," says Lycos EVP Ron Sege.

Both Sony and Universal refused to comment on whether they are talking with Yahoo. BMG, Warner Music Group and EMI did not respond calls seeking comment.

A deal with Yahoo would instantly legitimise the music subscription model, because Yahoo is one of the most popular destinations on the Web. In March, 48.3 million unique users visited Yahoo's sites, according to Media Metrix. Only AOL's properties draw more visitors.

But Yahoo isn't the only portal vying to provide music-on-demand. Seattle-based Real Networks is also positioning itself to implement a subscription streaming service for the major labels, according to Chairman and CEO Rob Glaser. Real announced this week that its installed user base for the Real Player had reached 125 million.

As the distribution of music online has become more popular - in part thanks to the success of MP3.com and Napster - labels and distributors alike have felt pressure to reach distribution agreements and make investments in Web companies.

The labels have made investments in companies such as Listen.com, Launch Media, Artist Direct and others, in a bid to stay close to whichever model is popular when Web music distribution gains mass acceptance. It's likely that once a large player like Yahoo adopts a workable business model, the smaller companies will reach similar deals with the labels.

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