Changes in store for digital music

SAN FRANCISCO - If the rampant speculation over the digital music plans of Microsoft and Apple Computer are to be believed, the digital music landscape is about to change radically in the very near future.

Both companies are said to be readying portable digital music players in time for the holiday sales season that significantly raise the bar on features and functionality previously unavailable in their respective product lines.

That Microsoft may actually introduce an MP3 player at all has generated the largest amount of buzz. Such a development would mark a major shift in the company's strategy. To date, the Xbox game console is the only product Microsoft makes itself. Historically, the company's model has been to license its technology to those creating the hardware and services, fostering an ecosystem of developers.

But in the digital music market, neither the MP3 player manufacturers nor online music retailers using the company's technology have proved capable of successfully competing with Apple's iPod and iTunes Music Store. Introducing its own combined device and service essentially is a vote of no confidence in the very ecosystem the company has been trying to create.

Microsoft has not commented to date on the rumours.

CUTTING INTO APPLE'S PIE

For Microsoft to mount an effective challenge to Apple, analysts say, it will have to bring something newer and/or better to the table than what the iPod currently provides. The consensus among several industry sources is that Microsoft will attempt to do this with a device featuring a Wi-Fi wireless internet connection. This would allow users to download music and other content directly to the device without using a PC.

Whether this tactic will prove to be Microsoft's silver bullet remains a matter of debate.

"It's a nonissue," Jupiter Research analyst Michael Gartenberg says. "It's something that the geeks are into, but Wi-Fi isn't mainstream or ubiquitous enough to affect the masses."

Besides Wi-Fi's penchant for eating up battery life, Gartenberg says that the idea of music search and discovery on a handheld device is a user-interface nightmare, which makes it a questionable lynchpin. Instead, he hopes to see a device that builds upon the key factors that made the iPod a hit -- design, usability and marketing.

Its success with the Xbox proves Microsoft has the ability to develop hip products and the willingness to back them up with extensive lifestyle marketing campaigns. In fact, the same team responsible for the Xbox reportedly is behind this new entertainment initiative.

Meanwhile, Apple is not expected to stand idle. The company is rumored to be working on a Wi-Fi-enabled iPod. Piper Jaffray analyst Gene Munster notes that Apple, which normally releases two new iPod models every 12 months, has yet to unveil a new product in the series this year. He expects Apple to introduce a wireless version of the iPod this fall.

GETTING VOCAL

Other Apple patent applications point to interest in text-to-speech and speech-recognition capabilities that would enable the iPod to "speak" song titles and allow users to give voice navigation commands. Additionally, there's the "real" video iPod featuring a touch-screen display, plus the long-rumored iPhone.

All of this is good news to the music industry. Microsoft and Apple have the clout to do much more than simply get existing iPod owners to replace their old devices.

"If these scenarios pan out, and we get some interesting products out there, the potential would be that these could be devices that attract more consumers to buying more digital downloads than physical CDs," says Michael McGuire, an analyst with Gartner G2.

But it's really the rumblings of an integrated device and service from Microsoft that has the music industry abuzz, and that's a significant feat, given the hype factor Apple has enjoyed to date.

Analysts suspect many consumers have not made the transition to digital music because they see it as Apple's domain and not a real market shift.

"It is important to have more than one or two vendors if you want the market to grow rapidly," McGuire says. "It is an actual ecosystem as opposed to a smaller ecosystem dominated by one company."

Additionally, music industry execs who publicly praise Apple's establishment of the digital music field have been waging a silent war with the company over exactly how digital music is sold, with such issues as variable pricing and device interoperability as battlegrounds.

If executed well, priced reasonably and backed by an extensive marketing campaign, a Microsoft challenge could set the stage for real competition to the iPod.

"Another strong player who can grow the market overall and take away some of the power Apple wields in negotiations is something people are quietly rooting for," Gartenberg says. "If the rumours are true, it'll be an interesting fall."
Additional information from Billboard.

- REUTERS