Yahoo! Faces the Music

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If Yahoo! (Nasdaq: YHOO) executives want to keep playing musical chairs, at least they know they can count on LAUNCHcast Radio to provide the soundtrack.

Yahoo!'s streaming radio service picked up a welcome lifeline via a new partnership with CBS (NYSE: CBS). CBS will enhance the Yahoo! service by providing a new media player, access to CBS stations, and deliver the audio ads. CBS Radio may not be as big as Clear Channel when it comes to terrestrial radio, but it's certainly better-suited to marketing audio ads than Yahoo!.

The deal is a great move for Yahoo!, simplifying its service through outsourcing without killing the brand, as the company seemed poised to do. Higher royalty fees threatened the existence of Web radio providers like Yahoo! LAUNCHcast last year. Yahoo! also handed off its music subscription service to Rhapsody parent RealNetworks (Nasdaq: RNWK) earlier this year.

However, this clearly is not the time to pull the plug on Internet radio. Apple (Nasdaq: AAPL) released its list of the most downloaded App Store programs for 2008, and Pandora -- the online music discovery app -- took the top honors. Even in an Apple-rific, iTunes-centric world, there's an appetite for streaming Internet radio.

Naturally, Yahoo!'s move is also great for CBS. Remember when Google (Nasdaq: GOOG) acquired radio ad giant dMarc Broadcasting in 2006, and everyone figured that new media would invade old media? Well, old media simply battled back by snapping up stakes in new media, as CBS did by acquiring Last.fm and MP3.com parent CNET.

Yahoo! will stream on, while old media learns more new media tricks. Turn up the boombox, so we can get to the next round of musical chairs.