Pay-per-song music downloads in the Windows Media Format are now available from Microsoft partners BuyMusic.com and OD2. The agreements suggest that Microsoft will continue to rely on partners for hosted services outside its core areas of expertise and will not follow Apple Computer's lead by building its own digital music service. However, users will have different rights for each song, which could hamper adoption.

Adding Pay-Per-Song

The pay-per-song model was popularized by Apple's iTunes Music Store, which launched in Apr. 2003 for Macintosh users (a Windows version is expected by 2004). The Music Store has been one of the most successful commercial online music services launched, with more than 5 million songs downloaded in its first two months. The number is particularly impressive given that Macintoshes constitute less than 5% of the overall personal computer market, although it pales in comparison with the 10 billion songs downloaded from illegal file-sharing networks every two months (according to Knowledge@Wharton estimates).

In July 2003, BuyMusic.com launched a pay-per-song service for Windows users, offering a library of more than 300,000 songs from all five major labels (compared with about 200,000 at iTunes Music Store). OD2, which has for several years provided the back end to the MSN Music Store in the United Kingdom, began offering its library of about 205,000 songs on a per-song basis in August. The music on both services is encoded using the Windows Media 9 Series Format, and the services use that format's digital rights management (DRM) capabilities to prevent unauthorized copying and use. OD2 also provides music downloads to Tiscali, an ISP and Web portal based in Western Europe, and plans to offer pay-per-song downloads to Tiscali in September.

BuyMusic, MSN Music Club, and the Tiscali Music Club will all appear in the "Premium Services" tab in the latest version of the Windows Media Player, although this bundling strategy may run into legal problems if the European Commission forces Microsoft to remove the player from Windows. (For details, see "EU Warns, Patent Disputes Heat Up, and Other Legal News" on page 30 of the Sept. 2003 Update.)

One significant wrinkle could hurt adoption for these Windows Media-based services, however. Unlike Apple, which was able to negotiate a single licensing deal with all five major labels (BMG, EMI, Sony Music, Warner Music, and Universal), BuyMusic and OD2 have different licensing agreements with each record label. This means that users will have different sets of rights for each song—controlling, for instance, the number of times they may copy it to a hard drive or portable device—depending on which label owns it. Prices also may vary among songs.

Partner Model to Continue for Now

As these recent deals illustrate, Microsoft is unlikely to follow Apple's lead and build its own music service. In general, Microsoft has shied away from building hosted services in the last several years, and CEO Steve Ballmer and Chairman Bill Gates have both acknowledged that Microsoft is not a content company.

The company might make an exception, however, if the current batch of Windows Media-based music services fail to attract customers, and if Microsoft believes this failure is hurting Windows sales.

BuyMusic is at www.buymusic.com. The MSN Music Club is at entertainment.msn.co.uk/music/. The Tiscali Music Club is at music.tiscali.co.uk.

For background on the importance of digital media to Microsoft's business, see "Windows Media Platform Updated with Series 9" on page 3 of the Nov. 2002 Update.