Yahoo is buying music software and services company Musicmatch for $160m in cash as it prepares to make a splash in the digital music arena.

The firm said that the acquisition is one of several new initiatives which it will use to build its music portfolio "this year and in the future".

Chairman and chief executive Terry Semel wants to commit Yahoo to being a major player in digital music.

"This combination bolsters our strategy to capture the largest audience of consumers as they make the shift to digital music," he said in a statement.

But Yahoo is likely to face stiff competition from rivals such as Apple with its iTunes service, RealNetworks and Napster.

Musicmatch's Jukebox software allows consumers to play, burn, download, discover and organise their music collection.

It also has an online Musicmatch Radio network, which offers access to more than 900,000 songs and 200 stations, and the Musicmatch Music Store which has 700,000 tracks available for download.

The company also recently introduced the Musicmatch On Demand streaming music subscription service.

Yahoo claimed that the deal will increase its music reach from 12.9 million to an estimated 23 million listeners.

The company cited figures from Jupiter Research predicting that music subscription sales are expected to grow from $113m this year to $890m in 2009, while digital downloads are anticipated to reach $803m in 2009, compared to $158m in 2004.

The transaction is expected to be completed during the fourth quarter of 2004.