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Music stocks are out of tune
Yahoo!'s new music subscription service left other music players searching for a beat.
May 11, 2005: 2:05 PM EDT

NEW YORK (CNN/Money) - Music stocks hit a low note Wednesday after Yahoo! Inc. unveiled its new online music subscription service and drastically undercut the prices of the current industry leaders.

"Yahoo! Music Unlimited" allows consumers to download an unlimited number of songs onto their portable MP3 players for $60 annually.

The service can run on a number of different models of MP3 players, but does not work with Apple's iPod, which is the market leader in portable digital music devices.

Yahoo!'s (Research) new online subscription music service is a direct challenge to such rivals as Real Networks Inc. (Research) and Napster Inc. (Research).

RealNetworks stocks plunged over 20 percent in afternoon trading on the Nasdaq.

Shares of Napster sank 32 percent. The company will post fiscal fourth-quarter earnings after the bell; analysts, on average, expect the company to report a loss of 63 cents a share according to First Call.

Shares of Apple Computer Inc. (Research), which doesn't offer a subscription service but rather allows users buy individual songs or albums through iTunes, fell nearly 5 percent on the Nasdaq.

Yahoo! shares edged higher.

"Clearly, this is a reaction to Yahoo's aggressive entry into the space," Steven Frankel, an analyst with Adam Harkness Inc., told Reuters "They were expected to enter the market, they were expected to be aggressive, but they were not expected to be this aggressive."

"We don't know yet what the long-term effect will be," Frankel said. "You can assume the others will need to respond quickly to this news."

In separate news, Warner Music Group Corp. (Research) shares fell more than 7 percent in their market debut after the record company's initial public offering raised a less-than-expected $554.2 million.

Late on Tuesday, the record company's 32.6 million-share IPO was set at $17 per share, which was far below its estimated range of $22 to $24 per share.  Top of page


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