February 3, 2004

According to knowledgeable sources, Yahoo bought music software developer Mediacode in December to help create a digital jukebox and media player--the key components in many music download services.

Online search directory Yahoo, rethinking earlier plans, is quietly exploring ways to develop a music download service as archrivals Microsoft and America Online place bigger bets on digital song sales.

The Mediacode team includes two founding members of Nullsoft, which created the popular Winamp music player and is now owned by AOL.

In addition, Yahoo also has begun kicking the tires of online music services as it rethinks its strategy, which hinges on streaming media, not downloads. For example, Yahoo has held discussions with Musicmatch, one of the largest Internet music services, in what could be a prelude to acquisition talks, according to sources familiar with the meetings.

Sources characterized the discussions as preliminary and said Yahoo has not yet made any offer. They added that Yahoo meets with companies often to discuss possible deals and has received inquiries in recent months from a handful of Web music services, including BuyMusic.com and Napster owner Roxio.

Yahoo declined to comment on any of these talks. "We do not seek to comment or speculate on market rumors," Yahoo spokeswoman Charlene English said.

Napster and BuyMusic also declined to comment. Musicmatch spokeswoman Jennifer Roberts would only say, "We talk to lots of companies, but we're just focused on running our business."

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