Yahoo's Music Subscription Service Sparks Industry Shake-Up

Strategic Insights -

Yahoo Inc.'s entry into the online music subscription market has caused a significant stir in the industry, with shares of rival companies Napster Inc. and RealNetworks Inc. plummeting after the announcement. The steep discounts offered by Yahoo on its music subscription service, priced as low as $4.99 a month, have raised concerns among investors and competitors alike, with many fearing that the move will force them to lower their prices or risk losing subscribers.

Key Takeaways:

  • Yahoo's music subscription service, launched on its heavily trafficked website, offers consumers unlimited access to a library of 1 million songs for as little as $4.99 a month.
  • Shares of Napster Inc. plunged 26.8 percent to $4.65, while shares of RealNetworks Inc. fell 21.1 percent to $5.76, following the announcement.
  • Apple Computer Inc.'s share price also dropped 2.2 percent to $35.61, although analysts believe the company is less vulnerable to Yahoo's move than Napster and RealNetworks.
  • Napster Chairman Chris Gorog sought to reassure investors and subscribers as $61 million of his company's market value evaporated, despite the firm's continued struggles financially.
  • The online music subscription market is seen as a key battleground, with Napster and RealNetworks charging $14.95 a month for a comparable service.

Statistics:

  • Shares of Napster Inc. fell by 26.8 percent to $4.65 on the news.
  • Shares of RealNetworks Inc. dropped 21.1 percent to $5.76 on the same day.
  • Apple Computer Inc.'s share price declined by 2.2 percent to $35.61.
  • Yahoo's music subscription service offers consumers unlimited access to a library of 1 million songs for as little as $4.99 a month.
  • The service aims to capture a growing market, with only about 15 percent of consumers to date expressing interest in renting songs.

Sources:

  • The Associated Press, via the San Francisco Chronicle, 15 April (no exact date given)
  • MICHAEL LIEDTKE, The Associated Press, SAN FRANCISCO, APRIL 16, 2003