Yahoo’s music play hurts Napster, RealNetworks; may force Apple to offer iTunes subscription service

21 years ago

“Yahoo Inc.’s steeply discounted foray into online music subscriptions struck a sour note Wednesday with the shareholders of Napster Inc. and RealNetworks Inc. — the owners of the rival services that stand to lose the most from the new competitive threat,” Michael Liedtke writes for The Associated Press. “Napster’s shares plunged $1.70, or 26.8 percent, to close at $4.65 on the Nasdaq Stock Market, where RealNetworks’ shares fell $1.54, or 21.1 percent, to $5.76.”

“Yahoo’s entrance into the music downloading business even hurt Apple Computer Inc., which runs the dominant online music store with more than 400 million songs sold since it opened two years ago,” Liedtke writes. “Apple’s shares fell 81 cents, or 2.2 percent, to $35.61 on the Nasdaq, even though industry analysts say the company is far less vulnerable to Yahoo’s aggressive push than Napster and RealNetworks. Yahoo’s shares gained 82 cents, or 2.4 percent, to $34.88 on the Nasdaq.”

Liedtke writes, “Napster Chairman Chris Gorog sought to reassure investors as $69 million of his company’s market value evaporated Wednesday. ‘We think there has been a significant overreaction in the market,’ Gorog told analysts during a Wednesday conference call. ‘Our customers have not fled in the past when desperate pricing moves have been made by competitors.'”

“Los Angeles-based Napster has been struggling financially, even before Yahoo entered the fray. After the stock market closed Wednesday, Napster announced it lost $24.3 million during the first three months of this year, while its revenue rose to $17.1 million from $6.1 million a year ago. The company expects to lose another $27 million to $28 million in its current quarter. Wednesday’s stock market reaction reflected a wide belief that Yahoo’s music subscription service, introduced Wednesday, will force Napster and RealNetworks to either lower their prices or risk losing subscribers,” Liedtke writes.

“The subscription services enable customers to rent an unlimited number of songs without ever owning the music outright. That’s a significant distinction from Apple’s iTunes store, which sells songs for 99 cents apiece and so far has frowned upon the rental approach,” Liedtke writes. “Apple has been able to eschew subscriptions so far because only about 15 percent of consumers to date have expressed an interest in renting songs instead of owning them, said Piper Jaffray analyst Gene Munster… If Yahoo’s service catches on quickly with consumers, Apple probably will offer a subscription option before the end of the year, Munster said. The popularity of Apple’s iPod players also figures to work against Yahoo because those devices aren’t compatible with its new subscription service. Apple already has sold more than 15 million iPods, creating a loyal audience unlikely to move to a competing service.”

Full article here.