Microsoft's iPod killer?

Sources say the technology--code-named Janus and originally expected more than a year ago--was recently released in a test version to developers and that a final release is now expected as soon as July.

Janus would add a hacker-resistant clock to portable music players for files encoded in Microsoft's proprietary Windows Media Audio format. That in turn would help let subscription services such as Napster put rented tracks on portable devices--something that's not currently allowed. Fans of portable players could then pay as little as $10 a month for ongoing access to hundreds of thousands of songs, instead of buying song downloads one at a time for about a dollar apiece.

Few online music subscription plans have enjoyed great success to date, but some music company executives said they believe Janus will make renting music more attractive to consumers and eventually give a la carte download services such as Apple Computer's iTunes Music Store a run for their money.

Device makers, too, see the software as a way to take on Apple and its industry-leading iPod player, which for now offers no support for rented music. Anticipating the Janus release, MP3 player makers including Samsung have already begun advertising support for the technology in a handful of high-end products.

"To us, Janus finally provides the platform on which we can build a new type of experience for the consumer," said Zack Zalon, president of Virgin Digital, the British conglomerate's new online-music division. "We believe this is it. This is what consumers are going to want. We want to be big participant in changing consumers' attitude towards what music really is."

Microsoft executives associated with the project declined to confirm details of the technology's release. "As we've said before, enabling access to unlimited downloads on consumer devices will open up all new scenarios for the distribution and enjoyment of digital content," Jason Reindorp, the group manager for Microsoft's digital media division, said in an e-mail statement.

Online-music insiders have debated for years about whether future services will ultimately resemble a traditional CD store--requiring consumers to purchase each single song--or a new model in which subscribers pay a monthly fee for unlimited access to all available music, without the right to keep the music after they stop subscribing.

Apple Chief Executive Officer Steve Jobs has been the most prominent proponent of the pay-per-download model, saying that consumers want to own, not rent, their music. Apple's iTunes supports solely downloads, one of the few services to focus exclusively on a single model, and has captured a dominant part of the market to date, selling more than 50 million tracks in its first 11 months.

Others argue that consumers used to the anarchic world of Kazaa and other file-swapping networks have grown accustomed to having thousands of music files at their fingertips. Only services that offer that kind of breadth of content--without requiring customers to pay thousands of dollars--will wean digital music aficionados away from file swapping, argue subscription advocates.

Analysts said they expect subscription services to trail downloads in popularity, given the alien quality of the rental concept.

David Card, a digital media analyst with Jupiter Research, said he doesn't expect Janus to drive dramatic growth in online music subscriptions, adding that it could take years for music rentals to challenge CD and download sales, if they ever do.

"I think this is good, but it's not as if this is a silver bullet," he said. "It is important in adding another feature to the ultimate goal of creating the 'celestial jukebox,' but it's probably not going to jump-start the market."

What's in it for Microsoft?
The Janus release comes as Microsoft is prepping its own commercial music service, which is expected to launch on its MSN Internet service this year and may include a subscription component along with the ability to purchase downloads.

Although Microsoft plans to get into the retail music market, its primary ambition is to be a technology provider and ultimately make its software the de facto industry standard for encoding and playing back digital media files--goals toward which the company could take a big step if subscription services based on Janus catch on.

Microsoft has worked hard to establish its Windows Media file formats in the industry and has won converts among record labels and music services. But it has struggled to win over consumers, having made relatively little headway against the dominant MP3 file format even as it has drawn antitrust scrutiny over its digital media plans.

Last month, European regulators hit Microsoft with a $617 million fine in relation to its digital media practices and ordered the company to offer PC makers a version of its Windows operating system with its media player stripped out. The software giant is also battling a civil antitrust suit involving its digital media business in the United States, where rival RealNetworks is seeking up to $1 billion in damages.

Part of the trouble with subscription services to date is that subscribers typically haven't been able to transfer the millions of files available to them to their portable music players. Record labels have largely required that subscription content "time out," or be made unplayable if a subscriber stops paying, and MP3 players haven't had the capability to support that feature.

That's where Janus comes in. The technology would add a "secure clock" to Microsoft's Windows Digital Rights Management technology, which would let an MP3 player tell whether a particular file was past its expiration date.

Microsoft has been working on that problem--a technically tricky one--for quite some time, and industry sources have said the company originally planned to announce it at the 2003 Consumer Electronics Show in Las Vegas.

Considerable time has elapsed since then, but sources say Microsoft developers finally appear to be reaching the finish line. Beta, or test, versions of the software have gone out to some developers within the past month, industry sources say. The software is expected to be released by late summer or early fall, with some citing a date as soon as July.

A few MP3 player manufacturers, including Gateway and Samsung, have begun quietly advertising Janus support in the specifications for their new high-end products. A representative of MP3 player manufacturer Digital Networks North America said the company was in negotiations with Microsoft and would support Janus, when released.

A Gateway representative said that company had been mistaken in listing current Janus support in the iPod-like player now available on Gateway's Web site, since Microsoft has not yet provided final specifications. But the company would support the technology when it was released, the representative said.

Online music companies are clearly eager for the prospect to make their subscription offerings more attractive to a generation of consumers who are snapping up iPod-like MP3 players, which can hold thousands of songs at a time.

"We are very excited about it, and will support it," said one executive at a music service, who asked not to be named. "We believe it's real and think it will be implemented."

Music service executives said they were still in negotiations with record labels over how to treat the new technology. Allowing people to bring thousands of songs at a time to portable players may wind up costing more than the $10 a month that most subscription services charge today, the executives said.

Nevertheless, some music services are eager to drive more consumers to subscription plans, since per-song download stores have tiny or even nonexistent profit margins.

"There are a couple of companies that are dependent on (subscriptions) for a steady revenue stream that doesn't have a one penny margin," said Liz Brooks, senior vice president of business development for Buy.com's BuyMusic site, which does not offer a subscription plan. "This could be very important."

Jupiter's Card notes that consumers have repeatedly said in surveys that owning music is important, however. It will take considerable time before a large part of the market grows used to the idea of subscribing to music the same way people subscribe today to TV services, they say.

"I think we're really at the stage for the next few years where (subscription) music services are for music aficionados, not for the mass audience," he said. "There are not enough of them that this is going to be a $10 billion business anytime soon."

CNET News.com's Evan Hansen contributed to this report.