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Internet powerhouse Yahoo Inc. (Nasdaq:YHOO - news) is introducing an online music subscription service that will enable consumers to download thousands of songs onto their portable MP3 players for $60 annually, undercutting the prices of the current industry leaders by more than 60 percent.

The Sunnyvale-based company planned to unveil "Yahoo Music Unlimited" Wednesday in a direct challenge to similar subscription services offered by Real Networks Inc. and Napster Inc.

Yahoo is offering unlimited downloads from a library of 1 million songs for $6.99 per month or $60 for an annual subscription. That's a sharp discount from Los Angeles-based Napster and Seattle-based Real Networks Inc., which both charge $14.95 per month, or just under $180 annually, for similar services.

By encouraging consumers to become song renters instead of song owners, Yahoo, Napster and Real Networks are pursuing a different sales approach from Apple Computer Inc.'s popular iTunes music store.

Under the rental model, consumers must pay a recurring fee and synchronize their portable music players with the subscription service at least once a month to preserve the music. If the subscription expires, the previously downloaded music becomes unplayable.

Renters also can't transfer downloaded songs to a compact disc without paying an additional fee. Yahoo will charge its subscribers 79 cents to own a song, below the 99 cents-per-song price of Apple's music store.

Yahoo's subscription service is compatible only with MP3 players that use Microsoft Corp.'s digital music format. That means the service won't work with Apple's iPod, the most popular MP3 player. The list of 10 devices that will work with Yahoo's service initially include Dell Inc.'s DJ player and Creative Technology Ltd.'s Zen Micro.

"This is all about expanding the market," said Dave Goldberg, general manager of Yahoo's music division. "We are convinced this is the way you should be listening to your music."

Yahoo expects its low-priced subscription service to make money, Goldberg said.

The company already runs one of the Internet's most profitable businesses, earning $840 million last year on revenue of $3.6 billion. Yahoo ended March with 8.9 million subscribers, most of whom pay for high-speed Internet access, online matchmaking services, or premium e-mail.

As part of its recent music expansion efforts, Yahoo last year paid $160 million for Musicmatch Inc., an online digital music jukebox. Yahoo intends to combine Musicmatch with its new service.

Yahoo's service sets the stage for a likely price war with Real Networks and Napster, predicted digital music industry analyst Phil Leigh. "About the only thing that would prevent a price war at this point is if Yahoo's software (for downloading songs) performs badly," said Leigh, who runs a market research firm called Inside Digital Media.

Yahoo's service also poses a possible problem for Cupertino-based Apple, which so far has refused to sell monthly subscriptions for unlimited access to its iTunes store.

Many record label executives prefer the subscription approach, Leigh said, because consumers are more likely to sample songs from relatively unknown artists, a phenomenon that helps the industry create more moneymaking stars. That means if Yahoo's push into online subscriptions is successful, the record labels might gain more negotiating leverage to pressure Apple into renting songs instead of simply selling them, Leigh said.

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On the Net:

http://www.yahoo.com

http://www.itunes.com

http://www.napster.com

http://www.realnetworks.com