Yahoo upsets the online music investing cart

New York Daily News - Business - Yahoo upsets the online music investing cart

Yahoo upsets the online music investing cart

BY TOM VAN RIPER, DAILY NEWS WRITER

Investing in hot technology has never been for the faint of heart. Yesterday's big winner is tomorrow's dog - as intense competition blows up business models just as they seem to be taking off.

So it goes with online music, where Yahoo's announcement that it's jumping into music downloading sent shares of Napster and RealNetworks reeling yesterday.

RealNetworks stock sank $1.54, or 21%, to $5.76, while Napster plunged $1.70, or 27%, to $4.65. Yahoo shares gained 82 cents to $34.88.

Napster said its quarterly loss widened to $24.3 million, or 60 cents, from a year-ago's $6.57 million, or 20 cents. Revenue nearly tripled to $17.4 million.

Yahoo, in its quick attempt to emerge as the prime competitor to Apple's iTunes, said it is offering thousands of songs for a yearly subscription fee of just $60, about a third what Napster and RealNetworks charge.

And that might make an investment in those two music providers only for those willing to bet on a takeover, experts said.

"Napster and RealNetworks have built a model based only on subscription fees, and that's just not happening now," said Manhattan money manager Gene Walton, who tracks the industry.

Even though shares of both companies had soared over the past couple of years, their future may now depend on a partnership to provide exclusive content - possibly adding video along with music - to a big gadget seller like Sony, Walton said.

Meanwhile, analyst Eugene Munster of Piper Jaffray told clients he thinks Yahoo will eventually raise prices after luring customers, giving Napster a chance to compete again.

But Yahoo's broad set of businesses, from Internet search to online games, may well allow it keep music cheap as a way to draw more traffic and drive up the price of its banner advertisements.