Internet powerhouse Yahoo Inc. is expected to launch a deeply discounted music service today, betting that low prices and personalized features will lure customers away from the troves of free but illicit music online.
With 176 million users, Yahoo is the biggest player yet to enter the growing legitimate market for music online. Yahoo executives hope to prod tens of millions of people to try the new service just by promoting it on the company's popular search engine, e-mail service and other Web properties.
Their challenge, though, is the same one their smaller competitors face: Persuading music fans to switch from buying songs to buying access to a service. Yahoo Music Unlimited is more like cable TV than a record store, enabling subscribers to play as many songs as they want provided that they pay their monthly fees.
Yahoo's most formidable competitor is Apple Computer Inc.'s iTunes Music Store, which takes a far simpler approach. It sells downloadable songs for 99 cents that can be transferred directly to Apple's popular iPod players, which do not work with Yahoo's tunes.
"Frankly, we don't think people understand what a subscription service is today," said Dave Goldberg, general manager of Yahoo Music. Music fans may not be willing to pay much to find out, he said, noting that free file-sharing networks offer vast amounts of bootlegged songs.
"Our goal is to get people in, get people to understand the value of why they would bother subscribing," Goldberg said. "We believe there is a huge opportunity to get consumers to pay a little bit for music if it's a better experience than what they're getting when they're not paying for music."
"A little bit" means $6.99 a month or $60 for a full year's access to Yahoo's collection, which comprises more than 1 million songs from the four major record companies and hundreds of smaller labels and independent artists. The service lets users transfer songs to certain portable devices and, for an additional 79 cents per track, burn permanent copies onto a CD.
One important advantage Yahoo and other authorized online merchants offer over file-sharing networks is the reliability of their wares. File-sharing networks such as Kazaa are rife with intrusive ads and fake song files placed by record labels trying to discourage piracy.
The major labels also have sued more than 10,000 individuals who use file-sharing networks in a bid to curb illegal downloading and build an audience for authorized services. Nevertheless, the number of subscribers and legal downloaders pales in comparison to the hundreds of millions of people around the world who bootleg music.
Yahoo's enticing prices -- up to two-thirds less than its competitors -- may not last long, executives said. One reason is that the major record companies have been trying to extract higher wholesale payments from online music services, particularly those that can transfer songs to portable devices.
These portable subscription services, which also include Napster Inc.'s Napster-to-Go and RealNetworks Inc.'s Rhapsody to Go, have several strikes against them, however. For example, they rely on technology from Microsoft Corp. that works with only a fraction of the players on the market, and early users have complained about glitches in transferring songs.
The shortcomings of the technology made Yahoo unwilling to charge extra for portability, Goldberg said, although it is likely to do so down the road.
Subscription services have other drawbacks, too. Their catalogs are growing but still lack some important artists, such as the Beatles and Led Zeppelin. Their songs are wrapped in electronic locks that make them harder to move than the MP3 files that proliferate on file-sharing networks.
Perhaps the most significant problem is the stigma that the monthly fees buy nothing permanent, and subscribers who quit are left with nothing to show for the money they spent. Although that situation is no different from Time Warner Inc.'s HBO or Netflix Inc.'s online DVD rentals, it is a relatively new approach in the music industry.
"There's not very much demand for it," analyst David Card of Jupiter Research said of music subscriptions generally.
Nevertheless, some music-industry executives said they were happy to see a company of Yahoo's size jump in and promote music subscriptions.
"This is a huge installed base that now has access to a cutting-edge legal music service," said Ted Cohen, a senior vice president of EMI Music. "It is attractive pricing, it is a really good service, and it's a good experience for consumers. And it's legal."
Goldberg said the company's focus was "personalization and community." To that end, the company integrated other Yahoo services to customize the music offering, let subscribers share songs with friends and help them discover music with other users' help.