Tuesday, May 17, 2005

Yahoo stunned the online music world last week by rolling out a beta version of software that allows users to access more than one million songs for as little as US$7 per month -- about half of what competitors Napster and RealNetworks offer.

Rumors are swirling around what top online music provider Apple (Nasdaq: AAPL - news) iTunes will do about the new competition, and the pressure is building.

The subscription business model "will hurt iTunes, absolutely," said Yankee Group's Mike Goodman. The question is what the company will do about it.

Most online music customers would prefer to download some songs and own them outright, and to sample others, paying a subscription for access to a wider range. This is the piece of the market that Napster, RealNetworks and now Yahoo are going after.

"This is a service that Apple certainly could recreate easily," he said.

But to this point the company has shown little interest in the subscription business, Goodman said.

"If they maintain that viewpoint, in the long run consumers will be less likely to purchase from iTunes and more likely to go to an integrated service," he said.