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Yahoo Drops Music Subscription Service, Pacts With Rhapsody

Yahoo is dropping its subscription music service and replacing it with Rhapsody America as part of a broad strategic partnership announced by the two companies today.

As part of the deal, Yahoo will exclusively promote Rhapsody on its site and integrate the service into Yahoo Music, though the two companies are still finalizing details on how that will be done. The two plan to collaborate on other digital music services such as music downloads.

Yahoo is the No. 1 music site on the Web claiming 23 million visitors to its music section, but only a small percentage signed on for Yahoo Music Unlimited. The company hasn’t said how many Unlimited subscribers it has.

Yahoo had announced plans to de-emphasize its subscription service several months ago while focusing on its main music site. Today’s move is a new strategy for the site that relies more on partnerships, not a move away from the music business, said Yahoo VP of video and media applications Ian Rogers.

The company also announced today that it has acquired FoxyTunes, a toolbar plug-in that lets users control desktop and Web music players and find lyrics, videos and other music info.

“We’re continuing to believe in and invest in the music business,” Rogers said. “We’re really just taking a different approach.”

For Rhapsody, which has partnered with Best Buy, TiVo and other companies in recent months, the Yahoo deal will help the company raise its profile further, RealNetworks senior VP of business development Dan Sheeran said.

“We basically have two objectives – to make the experience more mainstream with portable devices and living room devices and then tell the world about that,” Sheeran said. “This is a big part of how we achieve the latter.”

Yahoo Music Unlimited subscribers will be given the option in the coming months of moving to the Rhapsody service, which will maintain Yahoo subscription prices for a limited time.

Rhapsody, which is jointly owned by MTV and RealNetworks, doesn’t disclose how many subscribers it has. RealNetworks reported 2.7 million subscribers to all of its services including Rhapsody at the end of the most recent earnings quarter.

The partnership narrows the music subscription field down to Rhapsody and Napster.