Yahoo's Music Announcement

Yahoo! finally announced their plans for their on-demand music service (Rafat has a good roundup of the coverage). The highlights are 1 million track catalog available for streaming or tethered download, access to the premium version of Launchcast, integration with Yahoo Messenger and price.  The pricing they're going out the gate with, $6.99 / mo or $59 / yr, seriously undercuts the competition -- especially if you consider that you get premium radio, on-demand subscriptions AND Napster-to-go functionality - something that the others are charging $14.99 / mo for.  My take is as follows:

• In the near to mid term, this will have a greater impact on its competitors, Apple, Napster, Rhapsody, in the financial markets and not so much on the customer take-up or churn side.  RNWK & NAPS are already down double digit percentage in after-hours trading.  Rationale for the latter is that I just don't think the couple million subscribers that have thus far signed up for these kinds of services did a lot of comparison shopping before selecting a service.  It's not like satellite radio where the choices are clear and most people compare their options.  Most likely they signed up from an access point like the RealPlayer or via the ads Napster has been running.  This will change as there is greater awareness and saturation of the offerings but not for at least another year or 2.
   
• Being a late mover can test the demand curve at lower prices to see if volume makes up for it.  They already have information on demand at higher prices courtesy of their competitors.  And, by cleverly calling it a beta, they've reserved the right to raise prices in the future.  My bet is that they keep the price point for now and that they stick to it for a while.  That way they can grab as much market share from the competitors as there is to be grabbed or, if the competition matches the pricing, they'll hemmorhage more cash in doing so.  I think the pressure from the Street will be great for the others to match the pricing.  Look for Napster to try to raise more cash later on in the year if they think they'll need to weather lower pricing and/or higher SACs.
• Yahoo is betting that their Subscriber Acquisition Costs (SAC) will be lower than the others given their distribution.  That makes sense to me.  The integration into IM is clever.  If I remember correctly Launchcast radio got a big bump after being integrated into IM.  I like the concept of sharing playlists, though this is nothing new.
• Launch's demo tends to skew younger than the others, which probably fuelled the desire for the lower price point. 
• I think it will be a solid product and not as buggy as Rhapsody-to-Go is (it looks like they rushed it to market to make Radio City Music Hall date) nor as elegant as the iTMS.  E.g. Yahoo 360 is a solid product with a good UE despite being in beta.

[Caveat: At the time of this writing, I was long APPL & YHOO, though with piddling amounts that my wife lets me play the market with.]

Update:  I may have been off in predicting that it would be a solid, relatively bug-free product from Yahoo!  So why the timing of the announcement?  Ah, Napster's earnings call was today.  That's mean! 

Comments

[Michael Parekh]

Good rundown of the services...I do think Yahoo! could have done a better job explaining how their service compares and competes with their own existing offerings like Launchplus...also the branding is confusing as well...

ah, well, chalk it up to early days...

[Clarence Jones]

What will trip them up with some folks is the downloads expiring after you cancel/miss the payment deadline. People still like to Own, not Rent, the music they pay for...or have I missed a seismic shift? Likely though that it will put some short term pricing pressure on the other major services.
Love & Peace.

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