Summary:

This isn’t a big surprise: Yahoo (NSDQ: YHOO) has said that it is looking to retool its online music efforts and has been exploring all kind…

This isn’t a big surprise: Yahoo (NSDQ: YHOO) has said that it is looking to retool its online music efforts and has been exploring all kinds of options, including from what we hear, some major acquisitions or equity joint ventures in the space. Now AP reports that it is is in early discussions with labels to offer MP3s-format, DRM-free service, for download or free as part of an ad-supported service.

Yahoo was the first major music service to start offering MP3 downloads on a trial basis, in fall 2006. These current talks are preliminary, and any major changes or launch of a service may come later this year. Amazon.com (NSDQ: AMZN) and others have started MP3 format music offering in the last year, after all four music labels had a change of heart on DRM…eMusic has been offering MP3-format music downloads for a while now.

Staci adds: There has been a lot of speculation about Yahoo Music for months, even more since Scott Moore acquired responsibility for it late last year along with the rest of the entertainment portfolio. The buzz earlier this month was Yahoo would sell — or buy. (I was voting for Pandora as an acquisition.) Neither is the case, though I fully expect Yahoo to make a major change in the way it handles music. Yahoo Music Unlimited is still being hawked for “six bucks a month” — hard to believe it will survive as is or at all. It’s equally hard to believe, at this time of trying to pare down to what it does best, that Yahoo will take on a new major music project that requires a lot on the back-end — on its own, that is. (Consider AOL’s (NYSE: TWX) decision to outsource video downloads to Amazon.) As for ad-supported music, sure, why not? Everyone else is, which seems to be part of the rationale these days. The bigger question is what will Yahoo do that’s different enough to attract users — not just keep the ones it has?

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