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Microsoft Steps Into The Ring

Music Service Challenges ITunes

By Frank Ahrens
Washington Post Staff Writer
Saturday, September 4, 2004; Page E01

The launch of the Microsoft digital-music store takes direct aim at Apple Computer Inc.'s dominant iTunes service, setting off a battle of the bands between the online music sellers and their rock-star frontmen -- Bill Gates and Steve Jobs.

But the real fight could be waiting in the wings.

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With its MSN Music service that began Thursday, the software giant is challenging iTunes, which sells 70 percent of all music purchased online. On Wednesday, Apple reported that it had sold 125 million songs since its April 2003 launch.

Microsoft Corp., whose Windows software sits inside 97 percent of the world's computers, hopes its new music venture can enjoy similar success and make a dent in Apple's hegemony, something other rivals have been unable to do.

Apple rose to its new challenger, issuing a feisty statement: "Compared to iTunes, Microsoft's music store currently offers only half the songs and is missing many features, but its biggest problem may be that its downloaded songs do not play on iPod, iPod mini, or the Apple iPod from HP -- the world's most popular digital music players with over 50 percent market share."

But within the still-developing digital music industry, some question if the market dominance enjoyed by Apple and perhaps Microsoft can last more than a few years.

Both Apple and Windows base their online businesses on a pay-per-download model: Songs cost 99 cents each; most albums are $9.99. This year, the online sector should account for about 2 percent of all music sales, with estimates of total revenue running from $270 million to $500 million, according to industry figures.

Some analysts, however, believe the real money to be made will come from subscription services, which now lag behind the download stores in total sales. The reason has to do with the way people buy and use music.

With download services such as iTunes, users can hear a 30-second sample of a song before they buy it. Once they buy it, it stays on their computer or can be transferred to an MP3 player or burned onto a CD. (Songs purchased from iTunes can be played only on an iPod. Songs bought from MSN Music can be played on any of the nearly 100 MP3 devices for sale.)

The subscription model resembles how people watch cable TV. Services such as Napster, which charges $9.95 a month, give users the right to listen to the entire length of all the songs in the service's library an unlimited number of times. They typically hook up their computer to speakers or run the songs through their existing stereo systems.

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