Can Microsoft Slay Apple's Music Goliath?

It is releasing a preview of its MSN Music service, which will offer songs for 99 cents each or $9.99 per album. Those are the same prices that industry leader Apple (Nasdaq: AAPL) charges on its iTunes site. In a related move, the company also announced the release of a Portable Media Center, which will allow users to store and play music, movies, recorded television and photographs.

Both new developments will "expand the market and put an increasing amount of this expansion on platforms other than Apple's," according to analyst Rob Enderle of the Enderle Group.

But don't count Apple out. "This will all have to roll against Apple's marketing engine, which is unmatched in the segment," Enderle said.

MSN Music Service

The music service will initially offer 500,000 songs, eventually boosting that to match the 1 million Apple offers. The songs will be licensed from all five major labels and more than 3,000 independent labels. MSN Music Service will be available in the United States, France, Germany, Italy, Belgium, Brazil, Korea and Australia.

Apple's iTunes now controls more than 70 percent of the music download business. With iTunes and its competitors Real Music Store and Napster, customers must download a special program to manage music. MSN allows customers to download songs directly through their Explorer browsers.

Songs purchased from MSN come in the Windows Media format. They can be downloaded to a portable player an unlimited number of times but burned to a CD only seven times. Music downloaded from the MSN service won't work on iPods.

Same Mistake by Apple?

According to analysts, content owners are gravitating toward the Microsoft format because of Apple's refusal to license its FairPlay software. Microsoft already offers the most popular format for secure video. In related news, Wal-Mart (NYSE: WMT) today announced the launch of a new online music store compatible with the Windows Media Player, offering songs for 88 cents each.

The move suggests that Apple's rivals haven't conceded the game. According to Enderle, "Real actually has the best value proposition right now since they are the only ones that currently support both Apple and Microsoft technologies, giving the buyer the greatest choice."

"As it was with Windows, if iTunes is eclipsed it won't be because of Microsoft's player or service," Enderle added. "It will be because of their partners and the leverage that these partners bring to the table."

Price and Content

The Creative Zen Portable Media Center, made by Creative Labs, features a 20-GB hard drive capable of holding up to 85 hours of video or 9,000 songs. It carries an estimated retail price of $499. According to the company, the battery will hold up for seven hours of video or 22 hours of audio.

Video is viewed on a 3.8-inch, thin-film transistor (TFT) LCD screen.

That screen, of course, marks the major difference between the Media Player and the music-only iPod.

Portable video has already revealed its popularity, judging by the number of people watching DVDs on laptops or on players in automobiles. But will people be willing to make the move to a hard drive-based player?

"That will happen when the players' price drops, ease of use improves, and content is adequate," said Enderle. "We are a bit short on at least two of these goals right now -- price and movie content."

Load it Up with a Ballgame

CinemaNow is trying to change that, offering about 200 titles available for Portable Media Center playback, with more titles on the way. Movies will be priced at $2.99 to $3.99 for one viewing and $9.99 to $14.99 for download-to-own.

In addition, Major League Baseball will be selling a special service to owners of the media players, who will be able to download a number of services , including replays of entire games. Fans in a hurry can download condensed games -- with pitching changes and long at-bats deleted -- which Microsoft describes as "all the action of an MLB game in about 20 minutes."

The download service, available at mlb.com, also offers game highlights, classic footage and weekly blooper and home-run reels.

Porn and Games

The baseball service should prove a good match for the media player, according to some analysts, but another type of content might sell even better. "Sports and pornography are the two most likely big movers initially on this product," says Enderle. "And of the two, the one we aren't talking about is by far the most lucrative."

Video games offer another key to the future. If media player makers added gaming capability and lowered the price to $150 with a game subsidy, the market might take off. This prospect is what "makes the Sony (NYSE: SNE) Portable PlayStation product so interesting for next year," Enderle said.