Microsoft to sell music on Internet

Microsoft, the world's largest computer software company, is expected today to announce details of a service to sell digital versions of albums and singles over the Internet.

The Microsoft announcement, long expected in the music industry, comes at a time when other information technology companies and the world's music groups are aggressively stepping up their investment in the burgeoning digital music market.

IBM, the US computer maker, yesterday announced a deal to use audio distribution technology developed by RealNetworks, the software company, in a music delivery system, codenamed the "Madison Project". It is due to start tests in San Diego, California, this summer.

Last week, Seagram and Bertelsmann, two of the "big five" multinational music groups, announced proposals to launch a joint music sales Internet system. EMI and Sony, another two of the "big five", are also in talks regarding technical collaborations for online distribution.

At present, the digital music market is small. Just $142.9 million of the $40 billion worth of recorded music sold worldwide last year was purchased over the Internet, according to Market Tracking International (MTI), the research consultancy. Almost all those sales were made as mail order purchases of conventional compact discs or cassettes from Internet sites.

However, the digital market not only has extremely high growth potential - MTI expects it to be worth $346.4 million this year and $3.9 billion in 2004 - but promises to open up the music business to new types of on-line retailer at the expense of traditional record stores.

The prospect of delivering electronic versions of recordings by acts such as Lauryn Hill or TLC, directly to consumers' computers, thereby obviating the need to manufacture and distribute them in physical form, could help record companies to bypass retailers by selling directly to consumers. Similarly, information technology companies, such as Microsoft and IBM, should be able to diversify into on-line music sales, as the new wave of Internet retailers, notably Amazon and CD Now, have already done.