Yahoo! splashes out $160m on song shop

Yahoo! said it is acquiring digital music specialist Musicmatch for $160m in cash.

The company said the buyout would help it expand its presence in the simmering online music space, where Apple's iTunes service has proven the segment's potential by selling over 125 million songs, typically at 99 cents apiece. Founded in 1997, Musicmatch markets digital music software, dubbed Jukebox, and maintains a download service that boasts over 225,000 subscribers.

Included in those numbers are customers of Musicmatch On Demand, a subscription service that offers streaming music, and the company's online music download store. Musicmatch, which is based in San Diego, says that approximately 700,000 songs are available through its online catalogue.

"Yahoo! is committed to being a major player in digital music," Terry Semel, chief executive of Yahoo! said in a statement. "This combination bolsters our strategy to capture the largest audience of consumers as they make the shift to digital music."

The company faces formidable competition. Besides early leader Apple, the field also includes a recent entry by software giant Microsoft, a feisty presence in RealNetworks, a reinvigorated Napster and low-price specialist Wal-Mart Stores.

Yahoo! said the Musicmatch deal is one of several new initiatives in which it will invest to expand its music portfolio this year.

Jumping into music downloads signifies a switch from Yahoo!'s past music strategy, which has focused on streaming audio and video through Launch, a subsidiary that Yahoo! bought for $12m in 2001. Yahoo! also distributes the Napster music service, which lets customers buy music downloads and sign up for subscriptions. Rumours of Yahoo!'s interest in acquiring Musicmatch have been circulating since the two companies held talks in February 2004.

In July, Musicmatch launched a new version of Jukebox that added a search engine for browsing tracks and that also lets customers rank music searches by popularity. The feature was designed to let people buy and centrally manage music that's downloaded, recorded from CD or streamed on demand. Musicmatch allows subscribers to share complete playlists or individual songs, which recipients can listen to up to three times without officially subscribing to its download or streaming services.

Musicmatch currently charges $9.95 per month for its on-demand music service, offers individual downloads for 99 cents per song, and offers an online radio service free of charge.

Matt Hines writes for CNET News.com