Microsoft developing a rival to Apple’s iPod

By Kenneth Li

NEW YORK (Reuters) – Microsoft Corp. is developing a music
and video device to compete with Apple’s iPod and creating its
own music service to rival Apple’s iTunes, sources familiar
with the plans said on Friday.

Robbie Bach, a rising star at Microsoft who headed
development of the Xbox video game business, is overseeing the
project, one source said.

The Redmond, Washington-based company has held licensing
discussions with the music industry and is already
demonstrating the entertainment device, the sources told
Reuters.

The news comes one day after Microsoft founder Bill Gates
announced he would ease out of a day-to-day role at the company
he built into the world’s biggest software maker.

Bach was promoted to president of the company’s
entertainment and devices division after it was restructured in
December. At that time, he wrote in an e-mail to co-workers,
“While I will continue to play an important role in the games
area, I will spend more time thinking about our broader
challenges and opportunities across the division.”

A Microsoft-branded music service would reflect a
digression from an existing strategy to provide software for
other services, just months after the company launched a
service with Viacom Inc.’s MTV Networks.

“It seems like a shift in strategy … (Microsoft) is very
committed to it,” one source said.

Microsoft’s software technology has provided the copyright
protection framework for a number of subscription music
services globally, some with well financed backers including
Yahoo Inc.. But Apple Computer Inc. remains dominant in the
multimillion-dollar field of music and device sales.

Most iTunes rivals charge monthly fees to access a catalog
of entertainment, but some allow consumers to buy individual
songs for about $1 each. Microsoft’s service will emphasize the
pay-per-download, or a la carte, model, the sources said. A
subscription component will also be offered, according to early
accounts of the planned service.

One source, who has seen a demonstration of the service,
said it was an improvement over iTunes.

“They have been developing technologies that have really
good music discovery and community,” another source said.
“iTunes is the 7-11 (of music stores). You don’t hang out
there.”

Microsoft joins a crowded field of competitors in the music
service sector, including an entertainment device and service
expected to be launched by Internet retailer Amazon.com Inc..

Amazon plans to heavily subsidize the cost of the digital
device, much like wireless service companies do with the cell
phones they sell, one source said. Some of the devices will
come preloaded with music.

Microsoft earlier this year denied rumors that it was
developing a hand-held video game device to complement its Xbox
video game console.

It is unclear when Microsoft plans to launch the
entertainments device and music service, the sources said.

Apple and Microsoft could not immediately be reached for
comment.