The company, called Cerberus, has set up in the capital's Denmark Street, better known as Tin Pan Alley - home of the music publishing industry during the 1960s and centre of much that is innovative in music since.
Launching the service in London today, at a conference organised by independent record companies, Ricky Adar, managing director of Cerberus, said: 'We have not fixed our pricing structure yet, but it will definitely be considerably cheaper than buying a CD from a shop - as low as we can possibly get.'
Mr Adar expects opposition from the music business, to whom the venture represents a threat. Record and CD manufacturers, publishers and retail outlets could suffer if the idea succeeds.
A Virgin Records spokesman said yesterday: 'If this kind of system is completely without regulation, the whole economic structure could be undermined . . . I don't think that's going to happen, but there is a real dichotomy here. Freedom of dissemination of information is very important to young artists, but this kind of structure makes it difficult to ensure artists can make a living out of their work. Virgin is keeping an open mind at the moment.'
Mr Adar admits he is keen to find a way round what he considers a monolithic music business. He suggests artists might like to put their own price tag on songs - an idea that is bound to upset record companies. Accompanying video and graphics material, such as biographies of artists, would be displayed on the computer screen.
From a keyboard, subscribers would call the service, order the menu of music on offer and pick their track. Each time they access a single, they would run up a monthly bill with Cerberus, which would pass on royalties to the artists.
For people without computers, the company is working on a deal with cable television companies that would allow subscribers to call up a CD single, and watch accompanying video and graphics material on their television screen. Initially, Cerberus is offering 1,000 songs. The sound quality should be as good as that from any CD player. The digital service is a bit like someone playing a CD on a player a long way away then connecting it directly to your hi-fi or headphones.
There are two or three similar services on offer from US groups, using the Internet global computer network.
The Virgin Records spokesman indicated that companies such as his might possibly be interested in striking deals with organisations such as Cerberus. 'The Internet and digital transmission is here, and is something that needs to be addressed,' he said. 'There is a lot of interest in this.'
Mr Adar said the software Cerberus has developed sets it apart. Geffen Records recently offered what it claimed was the first single release over the digital superhighways, an Aerosmith track sent out over Compuserve. However, the digital data that makes up this track takes 90 minutes to download on to a computer. The Cerberus software compresses the audio data by up to 10 times, so a five-minute song takes 12 minutes to download.