Yahoo selling music service to Rhapsody America

— -- Yahoo is selling its digital music subscription service to Rhapsody America — a partnership of Real Networks and MTV Networks — as it revamps its music strategy.

Yahoo Music will continue to offer music videos, Internet radio and music downloads. But customers of its monthly Yahoo Music Unlimited service will be migrated to Rhapsody. No firm timetable has been set. Yahoo, which expects the deal to close by the middle of year, did not disclose terms.

Yahoo's music.yahoo.com is the most-visited online music site with 20 million monthly visitors, according to measurement service comScore Media Metrix. But the Music Unlimited service has only about 400,000 customers, says Phil Leigh, an analyst at Inside Digital Media.

Yahoo decided to sell the music subscription service because "we made a strategic decision to focus on the mass audience," says Yahoo senior vice president Scott Moore.

As part of the deal, Yahoo will promote Rhapsody on music.yahoo.com.

Yahoo Music Unlimited offered discounted subscription rates with a one-year commitment; subscribers now will pay the Rhapsody rate of $12.99 a month for a Web-only plan or $14.99 monthly for a plan that lets them download songs to a media device.

Music subscriptions — allowing consumers to access unlimited, on-demand music — have long been described as the holy grail of digital music but have never taken off.

Subscription services from Yahoo, Rhapsody, Microsoft and others let you download songs to a variety of portable devices as long as you keep paying a monthly fee. But the services were not compatible with Apple's market-leading iPod

According to market tracker Jupiter Media, music fans spent $1.1 billion on downloads in 2007, compared to $235 million in music subscriptions.

Still, Leigh says, the alliance makes Rhapsody "by and far away the market leader," and a stronger force. He says Rhapsody has just under 1 million subscribers.

"This takes away a competitor, and gives Rhapsody potentially some marketing muscle," says Jupiter analyst David Card. "This is good for Rhapsody."