February 4, 2008 4:12 AM PST

Yahoo axes music service, strikes deal with Rhapsody

Posted by Caroline McCarthy

It's been a tumultuous few days for Yahoo--you know, with that takeover bid from Microsoft--but the company continues to shake things up internally, too.

On Monday, the company announced that it will discontinue its Yahoo Music Unlimited subscription service and will transfer its customers to RealNetworks' Rhapsody service.

In mid-2008, Yahoo Music Unlimited subscribers will be guided through an in-browser process to convert their music libraries to Rhapsody's service. For a limited time (length unknown), they'll be able to keep paying Yahoo's subscription fees, which cap out at $8.99 per month, before being required to start paying Rhapsody's $12.99 monthly fee.

Additionally, Yahoo announced in conjunction that it has acquired FoxyTunes, a browser plug-in that is compatible with multiple desktop and Web-based music players.

RealNetworks, which acquired Rhapsody when it purchased parent Listen.com for $36 million in 2003, has been partnering with both hardware manufacturers like TiVo and media companies like Viacom's MTV Networks. It's the company's best strategy for staying afloat in a digital music landscape that's not only dominated by Apple's iTunes but also seems to be gravitating toward "free," not subscription-based models.

But the announcement with Yahoo is shrouded in uncertainty, for obvious reasons. Just about anything could happen to Yahoo if Microsoft's proposed $44.6 billion acquisition goes through.

RealNetworks, ironically, has a hostile history with Microsoft, too, dating back to an antitrust scuffle several years ago that led to a partnership in which RealNetworks ultimately claimed it was shortchanged.

Originally posted at The Social