HMV aims to bite into Apple online music party

HMV announced its long-awaited attempt to gatecrash the online music party yesterday via a partnership with Microsoft under which it will launch a new downloading service late next year.

The move will thrust HMV into a head-to-head battle with Apple, Microsoft's arch rival that dominates the nascent digital download market. HMV's new service will not work with Apple's iPod, which has a 70 per cent market share. The retailer intends to stop selling iPods next year.

HMV will invest £10m to develop the new service, which will offer music fans the option of downloading songs to their computers and portable music players. It said the cost per track would be "competitive with the best offer". Apple's iTunes Music Store charges 79p, while MSN charges 69p.

Shares in the music and books retailer surged 4 per cent to 254.75p, just off an all-time high. Analysts were relieved HMV was not investing more money and impressed it had teamed up with Microsoft.

The new service will include a customised "jukebox" - the equivalent of Apple's iTunes. Just as Dixons used its store network to launch Freeserve, handing out free CDs that customers could use to install the internet service provider on to their computers, so will HMV distribute the necessary jukebox software and hardware via its 200 UK stores.

Microsoft will develop the software exclusively for HMV and the music retailer will receive all the revenue and profit from the sales, a company spokesman said. The £10m cost will cover the first 12 to 15 months and will be split evenly between capital expenditure and revenue, with £1m of the cost hitting the company's profit this year.

The music downloads will be compatible with Windows Media Audio. The only player they will not work with is the iPod.