Yahoo! is holding early stage talks with major record labels about the creation of a DRM-free, MP3 download store, according to reports by the AP. The news service cites "two record company executives familiar with the talks," who claim confidential, preliminary discussions were held last month. Details are reportedly not finalised, and is not clear whether downloads will be offered free on an ad-supported basis or as part of a regular paid-for model.

Currently, the search company offers a premium Yahoo! Music Unlimited service. This subscription package gives users unlimited access to a catalogue of some 2m songs, which can be played or stored. Tracks which can be burnt to disc can be bought for an additional USD0.79 per track. The service includes a Yahoo! Music Jukebox player and costs USD5.99 per month if paid for as a one-payment yearly subscription, or 8.99 per month if paid in instalments. According to AP, Yahoo! spokesperson, Carrie Davis, claims the search engine is part of ongoing talks to bring copy protection-free music to its service, but denies that an announcement is imminent.

The Yahoo! rumours follow reports earlier this month that Napster is to sell all of its music DRM-free from Q2 2008. The music site, which currently focuses on a subscription music service, similar to Yahoo!'s, hopes the development will improve its faltering business model, which saw it lose USD5.1m in the quarter ending Sep 30 2007.

The move away from DRM is part of a wider industry trend. After EMI experimented with offering high quality, unencrypted tracks from its back catalogue last year, all of the other three major labels have since followed suit. In Sep 2007, Amazon launched its DRM-free MP3 download store. Rumours reported by Hypebot in Oct 2007 suggested that the store was already the third-largest online music store, following only iTunes and eMusic. In the same month it was reported that iTunes was dropping the price of DRM-free tracks from USD1.29 to USD0.99 in light of the new competition. The US online music download market will generate revenues of USD5.34bn in 2012, up from USD1.98bn in 2007, according to the Yankee Group.