Yahoo Music Engine Squeezes Competitors
The announcement of the Yahoo! Music Engine portal and its low-ball price points sent the stock prices of competitors into a tailspin on Wednesday (5/11).
Yahoo!, Inc. unveiled its music retail portal, dubbed the Yahoo! Music Engine, on Tuesday evening. The service is a subscription-based music streaming service that allows users the option to purchase tracks at a small premium.
The service will launch with prices of $6.99 monthly and $4.99 a month if purchased as a year-long contract. Both of the service’s primary competitors, Napster and Real Networks’ Rhapsody, charge $14.95 a month for a similar product offering.
Reaction Tuesday evening was largely limited to pundits and investors, and both camps reacted quickly in Yahoo’s favor, though questions surfaced immediately as to the longevity of Yahoo’s introductory pricing. A too-short period would not likely lure enough market share away from Napster and Rhapsody to guarantee success and a too-long period with such thin margins would hurt the profitability of the enterprise.
Still, the business press was quick to crown Yahoo a future winner in the subscription space, owing to the momentum of growth across their suite of paid services and the massive audience they bring to the launch.
Investor reaction was equally swift, with stock prices at Napster and Real dipping sharply in after-hours trading on Tuesday and holding that trajectory through Wednesday. Real Networks stock dropped 21 percent on Wednesday and Napster plunged nearly 27 percent on a combination of the Yahoo news and an earnings release showing accelerated net losses for the 4th quarter.
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