February 1, 2008 5:21 PM PST

Would Microsoft kill Yahoo Music?

Posted by Matt Rosoff

One of the first things Microsoft did when launching the new Zune was kill the 2-year-old MSN Music download service.

The business reasons were plain: MSN Music was a PlaysForSure service, but the Zune wasn't PlaysForSure-compatible, and it came with its own music download service, integrated into the Zune software.

Sure, there's still something with the brand name MSN Music, but it's basically a shell--a few music videos, some promotional tie-ins with Zune (through a program called Ignition), and a radio station powered by Pandora.

If Microsoft's smart, it'll keep LaunchCast around.

(Credit: Yahoo)

So what might that mean for Yahoo Music, if Microsoft's proposed acquisition of Yahoo clears? Probably not much, at first.

Microsoft's Kevin Johnson, who leads the group responsible for online services and Windows, mentioned in a conference call that the company would get the quickest benefits from combining their advertising platforms, particularly paid search: "scale economics can kick in fairly rapidly when you just look at the simple step of just combining the search-related ad inventory on a single ad platform."

Translation: as soon as the acquisition closes, Yahoo Search would be folded into Microsoft's Live Search, and Panama would be folded into AdCenter.

Eventually, though, Microsoft would go through all the other Yahoo divisions, looking for overlap or strategic misfits. Here's where Yahoo Music could feel the heat. Selling PlaysForSure-protected files does nothing for the Zune, and even if Yahoo goes with DRM-free MP3 files, it would seem to be redundant with the Zune Marketplace.

Now, if Microsoft were smart, it would recognize the popularity of the combined Yahoo Music and LaunchCast (see Aribtron's online-radio ratings). But often, decisions in acquisitions are driven by politics and emotion rather than actual business logic.

Editors' note: Yahoo on Monday announced that it is discontinuing its Yahoo Music Unlimited subscription service, transferring its customers to RealNetworks' Rhapsody service.