Yahoo to pay $160 million for music site

Musicmatch deal aimed at Apple and Microsoft

September 15, 2004|By BLOOMBERG NEWS

SUNNYVALE, Calif. - Yahoo Inc., owner of the world's most-visited Internet site, said yesterday that it will buy Musicmatch Inc. for $160 million to sell music downloads and compete with Apple Computer Inc. and Microsoft Corp.

Musicmatch's service allows consumers to download and buy songs from the Web for 99 cents each, store music from compact discs on their computers and transfer music to CDs or digital music players.

Yahoo's music Web site, Launch, doesn't let customers store music and doesn't sell downloads. The site previously had linked to Roxio Inc.'s Napster download service.

Yahoo Chief Executive Officer Terry Semel is adding new subscription services for consumers to diversify revenue and to get people to spend more time on the company's Web sites.

Apple's iTunes service sells the most music online. Microsoft opened an online music store Sept. 2, and other companies might follow.

"Really, it's a defensive benefit" for Yahoo to own Musicmatch, said Mark Herskovitz, a fund manager with Dreyfus Corp. in New York. "This is a way of making sure people aren't going to leave your site."

Dreyfus owns about 2.2 million Yahoo shares, he said.

Yahoo's shares rose $1.33, or 4.2 percent, to close at $33.20 yesterday on the Nasdaq stock market. The stock has risen 47 percent this year.

Adding Musicmatch's subscribers will expand the audience of the Launch Web site by 78 percent, to 23 million, Yahoo said. Launch is the most-visited music site by U.S. Internet surfers, according to research firm ComScore Media Metrix. Musicmatch is the third-most-visited, after Launch and the music service on Time Warner Inc.'s America Online.

Launch streams songs and music videos, offers news about music and sells CDs and cell phone ring tones. Yahoo purchased Launch Media Inc. three years ago for $12.4 million.

The deal is good for Yahoo and Musicmatch, said David Card, an analyst at Jupiter Research in New York. "Musicmatch is a good company with little chance of being lost in the crowd."

Apple's iTunes site sells more music, though it gets fewer visitors. Apple, based in Cupertino, Calif., said two weeks ago that it has sold more than 125 million songs since iTunes started in April last year, more than 70 percent of the music downloaded legally in the United States.

Musicmatch sells 1.5 million downloads a month, spokesman Jason Klein said. That's about one-fifth of iTunes' sales.

ITunes is the only service selling music that plays on Apple's iPod, the top-selling digital music player.

Other companies that sell downloads include Real Networks Inc., through its Rhapsody service, Wal-Mart Stores Inc. and Sony Corp.

Competitors likely to enter the market include Inc. and Viacom Inc.'s MTV cable television networks, said Philip Leigh, an analyst at Inside Digital Media, in Tampa, Fla.

The companies are trying to get a share of a growing market. The U.S. online music business, including monthly subscriptions and downloading of songs, will expand to $1.7 billion by 2009 from about $100 million last year, Jupiter Research's Card predicted.

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