Yahoo Music apparently slated for cutbacks
According to a report yesterday in The Wall Street Journal, Yahoo's restructuring plan will likely involve significant cutbacks at Yahoo Music, including the shutdown of one or more of its subscription-based services.
In fact, it looks like Yahoo has already removed all links to its Yahoo Music Unlimited To Go service. The service, priced at $11.99 per month, allows users to transfer files to a compatible portable device. The service now can be found only by conducting a search, and I'm not sure if Yahoo is accepting new customers for it. That leaves Yahoo Music Unlimited, which offers PC-only downloads for $5.99 per month, with an option to buy CD-burnable downloads for an extra $0.79 apiece.
This could cause some trouble for manufacturers of portable music players that don't have their own stores. I'm thinking particularly of SanDisk, which has the No. 2 position fairly well locked up at this point, with around 10 percent of the market, mostly at the low end. (Microsoft hopes to be in this position by next year, but so far hasn't officially announced any low-cost flash-based players, so it isn't in the same market category.) Today, SanDisk's Sansa Connect player is the only one offering a Wi-Fi-enabled device with a subscription-based service--that is, anytime, anywhere access to millions of songs. But that product relies on Yahoo Music Unlimited To Go. So SanDisk will either have to find another partner (Rhapsody?), build its own store, or fundamentally change the Connect--perhaps offering downloads only, as Apple's going to do with its iTunes Wi-Fi Store.
The decision to cut back on Yahoo Music also illustrates a point I made yesterday: online music stores generally exist to sell some other product. According to an Insider estimate from April by PacificCrest's Andy Hargreaves, Apple pays about 70 percent of the cost of each download back to the content owner. (Anecdotally, this matches up with the cut that independent musicians receive when they sell their songs on iTunes via CD Baby--see the end of this post on Digital Audio Insider.) After that, Apple has to cover various other costs (delivery, transaction fees to payment processors) and probably ends up keeping about 10 percent. Compare this with the estimated profit margins on Apple hardware like the iPhone (50 percent before the recent price cut) and iPod Shuffle (around 40 percent when it launched in early 2005), and it's clear that iTunes is meant to drive hardware sales, not the other way around.
Microsoft and Nokia are following a similar tack, building their own music stores in hopes of selling more devices. But for companies with no adjacent business, selling online music is tough. I imagine large retailers like Amazon.com and Wal-Mart Stores do OK because of their huge scale, and RealNetworks is making a go of it with Rhapsody, but smaller online retailers face a tight squeeze.
Matt Rosoff is an analyst with Directions on Microsoft, where he covers Microsoft's consumer products and corporate news. He's written about the technology industry since 1995, and reviewed the first Rio MP3 player for CNET.com in 1998. He is a member of the CNET Blog Network. Disclosure. You can follow Matt on Twitter @mattrosoff. 
- Wow... how about yahoo didn't mention this!?
- by min.darren September 27, 2007 10:38 PM PDT
- Yahoo made an e-mail announcement that the prices would be raised (and they were) and the new annual subcription price is higher than what I want to pay at this point. So I tried to downgrade to the monthly price only to find that there was no option to do so. I currently have the yahoo unlimited to-go service... and it will now only let me renew the service (for $143.00!) or cancel all together and subscribe to the pc-only unlimited service (no to-go).
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- by axevs957 December 26, 2007 11:44 AM PST
- Absolutely agree with you.
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(3 Comments)I'm hurt (to say the least) that 1) I had to search C-net to find any real information about this. Customer service only reported:
"Thank you for writing to us about downgrading your Yahoo! Music Unlimited subscription from annual to monthly. We will try to resolve this for you as soon as possible.
We're sorry, but the option of changing it from annual to monthly is not currently available in Yahoo! Music Unlimited.
You can just cancel it and re-subscribe to your preferred monthly service. However, at this time, Yahoo! Music Unlimited To Go is only accepting new subscribers through select partner channels such as SanDisk (Sansa Connect)."
I guess I need to switch to napster!
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Senser