Microsoft Preps Online Music Store - 19 Nov 2003

The already crowded market for digital-music services is going to get a bit more crowded next year when industry giant Microsoft enters the ring. Microsoft confirmed this week that it will join Apple Computer,, MusicMatch/Dell, Napster, RealNetworks, and other companies next year to offer its own service--tentatively called the Microsoft Music Download Service--for streaming and downloading music from the Internet. "We are excited to confirm that MSN will deliver a download-music service next year, and we look forward to sharing more details at a later time," said Lisa Gurry, an MSN group product manager.

Currently, the market is divided into three types of digital-music services: digital-music download services such as Apple's iTunes Music Store, which loses money on every song sold; digital-music streaming services such as RealNetworks' RHAPSODY service, which makes a healthy per-subscriber profit; and services that offer both features, such as Napster, which subsidizes the downloads with profits from streaming subscribers. Currently, which tactic Microsoft plans to use is unclear.

One fact is clear, however: Microsoft's entry into the digital-music market will further strengthen the Windows Media Audio (WMA) 9 format, which is used by all music services except the iTunes Music Store, which uses the Advanced Audio Coding (AAC) format. Microsoft already operates a music service in the UK called MSN Music Club, which offers digital downloads of songs that users can burn to CD; this service might be the impetus for a wider US-based service.

One advantage Microsoft will have over the competition is that the company can afford to take a loss on the service until it irons out the kinks, thanks to its $50 billion in liquid funds. Companies such as Apple, MusicMatch, and Napster are working with dramatically fewer resources. And although Apple touts the number of downloads it has provided, the company is losing money on each download and hopes to translate its iTunes Music Store overhead into iPod sales, a debatable long-term strategy. At some point, portable media players will become commodity items, and Apple won't be able to charge customers the high prices it does now.

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