Microsoft's Fight for Music Turf

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An interesting article by Stephen Lynch in yesterday's online edition of the New York Post sent shares of Roxio (Nasdaq: ROXI) up nearly 9%, essentially on the idea that Microsoft (Nasdaq: MSFT) might be moving to make the digital music company the music store of choice for users of its popular Media Player. While little in the story supports that notion besides some observant dot connecting, it does underscore Microsoft's very likely desire to act defensively against Apple's (Nasdaq: AAPL) ever-expanding iTunes empire.

I won't recap much of the story here; just click the link above and check it out. What's important to take from it more than anything, in my opinion, is that investors are closely watching for signs that Microsoft will act, in Lynch's words, as "kingmaker" in selecting Roxio's Napster (or some other company's service) to be the de facto iTunes alternative for Windows users.

The quick growth in popularity of not only the iTunes service but also the iPod portable player -- while spawning plenty of imitators, particularly on the device side of the equation -- has, it seems, finally legitimized downloadable music (and portable players) as a business. Apple has been on the offensive, and two of its troop movements stand out: the October launch of iTunes for Windows, and last month's news that Hewlett-Packard (NYSE: HPQ) will put iTunes on its desktops and sell re-branded iPods.

Microsoft can't be happy with Apple's inroads into its virtual (and not-so-virtual) space. And so investors will keep watching to see what the Redmond software giant's next big move might be. Besides Roxio, possible candidates include RealNetworks' (Nasdaq: RNWK) Rhapsody and Microsoft partnerLoudeye (Nasdaq: LOUD). (Seth Jayson took a look at Loudeye in a column yesterday, while RealNetworks is a "cheap stock" Rick Aristotle Munarriz is watching.)

Investors should keep in mind, however, that Microsoft is reportedly working on a music store of its own, with a debut scheduled for sometime this year. (One such service already exists in Western Europe, though it seems somewhat unlikely the company will import it in its current form.) In the end Microsoft may be content to keep Roxio and its ilk as partners while it builds up its own offerings.

What's next for Microsoft in digital music? Talk it over on our Microsoft discussion board.

Fool contributor Dave Marino-Nachison doesn't own any of the companies in this article. He can be reached via email.