Yahoo! will soon be dancing to a new tune as it purchases online jukebox provider Musicmatch, in a cash in hand deal costing US$160 million.
Rather than build their own service, Yahoo has decided to buy an online music provider in an attempt to broaden the Internet’s appeal with the growing number of people who purchase songs from the Internet.
Digital music is becoming increasingly popular. According to Jupiter Research, sales from online music subscriptions and downloading is expected to rise from an estimated US$271 million in 2004 to US$1.7 billion in 2009.
Sunnyvale-based Yahoo! expects its music audience to climb from about 12.9 million people to 23.9 million after the acquisition is completed by the end of the year.
The all-cash acquisition, announced on Tuesday, gives Yahoo! the chance to compete in the increasingly competitive digital music market place, against the likes of Apple Computer, RealNetworks and Napster. Microsoft launched its own online music store, MSN Music, earlier this month. EBay and Virgin have also announced plans to open online music stores.
San Diego-based Musicmatch will become a wholly owned subsidiary of Yahoo! upon completion of the acquisition. They will provide the Yahoo! with two new features: an online music store selling individual songs for 99 cents each and a software program that helps manage digital music on computer desktops.
The purchase will give Yahoo! a strong position in the digital music business, in both ad-supported media, such as radio and music videos, and on-demand distribution, with subscriptions and downloads.
“This acquisition is one of several product innovations and new initiatives in which Yahoo! will invest to build our music portfolio this year and in the future,” said Terry Semel, Chairman and Chief Executive Officer, Yahoo! Inc
The decision is welcome by its investors. In Tuesday’s trading shares in Yahoo! increased from $1.33 to US$33.20 on the Nasdaq Stock Market.