Behind the music: Microsoft?

Partners line up to support new digital media playback software, but can portable video and music rental rights defeat Apple?

Microsoft is set to unveil the latest version of its media playback software on Thursday, giving its partners powerful new tools for selling digital entertainment services even as it launches its own music download store.

With Windows Media Player 10, Microsoft hopes to leapfrog competitors such as Apple Computer and RealNetworks with some novel features, notably support for music rentals and video playback on a new generation of portable devices.

Those products and features are so new that it's not yet known whether consumers will gravitate toward them en masse. But Windows Media 10 has created enough industry buzz that partners are lining up in force behind Microsoft, offering a potential boost for the software giant's long-standing campaign to make Windows Media a de facto industry standard.

Call them Microsoft's coalition of the willing.

Dave Fester, Microsoft's general manager of Windows consumer marketing, said online music service Napster and device maker Creative on Thursday will unveil products and services supporting the software, the first of a crowd of licensees.

"Our goal is to offer consumers a seamless digital experience," Fester said. "Consumers will be able to buy music from different stores and play their songs on different devices. They'll be able to get it everywhere they go, throughout the home and on the go."

Microsoft will have to tread carefully to avoid alienating those partners. Windows Media Player 10 comes as its MSN Web portal on Wednesday launched a music download service that will be featured within a "music mall" inside the application, along with several other digital music services that use Microsoft's technology.

Although Microsoft plans to seize the offensive with its new software, it faces a tough challenge from Apple, whose iPod portable music player and iTunes Music Store dominate the nascent industry. iPod sales--already rocking at 860,000 units in the last quarter--are expected to surge with a big marketing push from Apple partner Hewlett-Packard, which is reselling a version of the device.

Microsoft hums a new tune
Microsoft has two primary weapons it is bringing to the fight: digital rights management (DRM) and video.

Windows Media Player 10 incorporates a new copy-protection scheme, formerly known as Janus, that for the first time allows online music subscription services such as Napster to offer rented tracks on portable devices. Microsoft's Fester said that Napster plans to begin selling portable subscriptions on Thursday for about $15 a month.

The portable subscriptions will work only on a new generation of portable devices that also support Microsoft's DRM scheme. The first such device, Creative's Portable Media Center, will be available at retail stores Thursday, Fester said.

The Portable Media Center features a 20GB hard drive as well as photo and video capabilities and will sell for a suggested retail price of $499. Other devices to support Windows Media 10 are expected soon from iRiver and Samsung.

Portable video remains a wild card, given unproven demand and the nascent state of commercial digital video services. Fester said consumers can use the device to record TV shows and video from a television set. The devices can also be used to display static images, such as personal photos and album art.

Jupiter analyst Michael Gartenberg said that Microsoft may be on the right track with the product offers--eventually. The big question for now, however, is whether it has jumped so far ahead of the market that consumers aren't yet ready to follow.

"The portable download rental model is really brand new. It's never been tried before," Gartenberg said.

He added that price tags as high as $499 for Creative's device could keep portable video players in an enthusiast sales niche. "What Napster needs is an audio-only device for a fraction of that price."

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