Microsoft ultimately hopes to offer music subscription services on its MSN site, charging customers a monthly fee. But the record labels have been wary of handing it too much power over their online plans, and the software giant has yet to broker the alliances that would let it offer access to the labels' full catalogs, as have Yahoo, Napster and archrival RealNetworks.
Nevertheless, the company has been able to use the growing influence of its Windows Media audio and video technology as leverage over the rest of the industry. This has shown up particularly in the creation of the MusicNet joint venture between RealNetworks and three major record labels, where Microsoft's technology has been one source of tension between the streaming media company and its partners, sources say.
Microsoft isn't an official part of that venture. But sources say that the labels pressured RealNetworks to include support in MusicNet for Microsoft's Windows Media technology, which is battling for dominance with its own RealAudio and RealVideo formats. Although RealNetworks will serve as the default software for MusicNet, other Web sites that license MusicNet will have the option to use Windows Media technology as well.
"If MSN wanted to license MusicNet, they could do it in Windows Media," said a source close to MusicNet who requested anonymity. "While agendas may intersect, they diverge in many places. What's good for RealNetworks isn't always good for MusicNet as a service."
Microsoft's future in online music hinges on whether it can turn such influence into a foothold in the alliances forming between technology companies and record labels. At that point, the company's ambitions to turn the widespread use of its technology into a recurring stream of new profits could come together, at least in the digital music realm, analysts say.
"Basically they see (America Online), the biggest consumer-oriented service, on the desktops of 27 million or 30 million people, collecting monthly fees from all of them," said Matt Rosoff, a analyst with Directions on Microsoft, a research firm that focuses on the software company's actions. "Microsoft thinks they should be able to collect a monthly fee, too."
