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According to Reuters, which quotes un-named 'sources', the software giant is already having discussions with the big music publishers on licensing their tunes for the new service. Robbie Bach, who led the development of Microsoft's Xbox video game business, is allegedly in charge of the new project.

Last month, Microsoft announced it would partner Toshiba, JVC and local telco DoCoMo and five other companies to develop portable music players for the Japanese market, with Microsoft providing

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the software based on the recent Windows Media Player 11 currently in beta.

On the face of it, it would seem that Microsoft is following a similar line to the Origami project of a few months ago. That is, to provide the software fundamentals and allow hardware developers to build the kit. However, Microsoft has already been promoting its 'Play for Sure' initiative to encourage people to buy Windows Media Player-ready devices and many online music stores including Microsoft's great online rival Yahoo! have download services based on Microsoft technology, none of which have made a serious dent in Apple's dominance.

Nevertheless, the music industry would dearly love to see a rival to Apple's iTunes. Last month Apple faced down demands from the music industry for variable pricing on its service and renewed its contracts with the big four publishers. With iTunes commanding some 80 per cent of the world's legal downloads business, Apple has the music industry over a barrel - for now.

The rumours arose just one day after Bill Gates announced he was stepping down from day to day business at Microsoft. In February of this year Gates promised a Microsoft rival to the iPod.