Will the pairing take a bite of Apple?

Yahoo is expanding its presence in the crowded digital music market with the $160 million acquisition of niche player MusicMatch.

Founded in 1997, MusicMatch is one of the pioneers in the space and the only independent company that’s been able to compete in online music with Microsoft’s Windows Media Player and Apple’s iTunes.

In addition to an application to manage and play music on computers, company runs an a la carte music store and premium radio and on-demand music subscription services.

Yahoo made its first move into music in 2001, when it acquired online radio company Launch. The combo has since become one of the Web’s most popular music destinations, but Yahoo has thus far not competed with any of the proliferating Internet music stores for fans’ dollars.

Acquisition of MusicMatch, which has 60 million registered users and more than 225,000 paying subscribers, immediately boosts Yahoo’s reach in music.

Although MusicMatch has a store with 99¢ downloads, Yahoo plans to focus primarily on more profitable but so far less popular subscription services, through which users can listen to on-demand music and premium radio stations for a monthly fee.

“We see subscriptions as our main focus and, ultimately, what consumers will prefer,” said Yahoo’s VP and general manager of music Bob Roback. “MusicMatch has a very strong presence in subscriptions.”

With the acquisition, which is skedded to close in October, Yahoo will have more opportunities to monetize its large audience throughout its network, which right now heads to such competitors as Apple or RealNetworks to purchase music.

It’s not yet clear how many of San Diego-based MusicMatch’s 175 employees will stay on board after integration is complete.

Deal fits in with Yahoo CEO Terry Semel’s strategy of expanding his company’s offerings through acquisitions of independent Web players, which he has done through deals for companies such as HotJobs and Overture.

“Yahoo is committed to being a major player in digital music,” the former Warner Bros. topper said of the deal. “This combination bolsters our strategy to capture the largest audience of consumers as they make the shift to digital music.”

Semel said other music initiatives are in the works for his company over the next year.

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