iTunes gets a Yahoo! rival

Web giant Yahoo! is poised to launch a new digital store and music player, aiming to compete more directly with Apple's successful iTunes service, according to sources familiar with the project.

As previously reported, Yahoo! has been working on the project along with digital-music wholesaler MusicNet since before the $160m purchase of rival music company Musicmatch. Sources familiar with Yahoo!'s plans said the new store and software had been scheduled to debut early this week but that the launch date was pushed back.

Representatives from Yahoo! and MusicNet declined to comment for this story.

Yahoo!'s full-fledged entry into the digital-music retail business could help shift a market that has remained tilted strongly in Apple's favour. Yahoo! has already built a large and loyal following for its streaming-music and video service, and could parlay that into music sales.

Indeed, the company's Launchcast radio services was the highest-rated webcasting service online in January, according to ratings firm Arbitron and ComScore Media Metrix, attracting more than 2.2 million people that month.

However, Apple's dominance has been challenged by other giants, ranging from Sony to Microsoft, without substantially decreasing the iPod maker's market share. Last week, Apple said it had sold more than 300 million songs through its iTunes store since its launch.

GartnerG2 analyst Mike McGuire said: "You have to look at how to create a linkage between a device and the online service. But given Yahoo!'s traffic and their very active communities, the potential [for success] is there."

Yahoo! has begun to streamline its music and multimedia properties over the past few months, changing the name of its Launch site to Yahoo! Music and consolidating its entertainment businesses in a Santa Monica, Calif., office near Hollywood.

The new MusicNet-powered music service will be integrated into Yahoo!'s existing infrastructure, possibly including features such as links to its popular instant-messaging program, sources said. MusicNet's technology allows companies to offer subscription services or per-song downloads, and is used by Virgin Digital Downloads, America Online and others.

Sources close to the company said the new service is likely to launch by the end of the month.

John Borland and Jim Hu write for CNET News.com.