Microsoft launches pay-as-you-go online music shop

The multibillion-pound battle between record companies and websites downloading "pirated" music to millions of internet users intensified yesterday with the launch of Europe's first pay-as-you-go online music shop.

The MSN Music Club is the result of a deal between the world's largest software company, Microsoft, and the five leading global music producers, who are so desperate to reverse the success of the free file-swapping sites that they are undercutting their retail prices.

Music fans can download tunes onto a CD or digital player for between 75p and 99p a track or £7.99 an album - a third less than the high street price. The creators of the virtual record shop, which uses a catalogue of 200,000 tracks provided by OD2, a digital music venture set up by the musician Peter Gabriel, hope to attract users of the illegal download sites and open the digital market to new users.

For record company executives, a change in the music download trend cannot come soon enough.

According to the International Federation of the Phonographic Industry, the annual trade in illegally copied music, ranging from downloaded tracks shared between teenagers to industrial-scale CD production by criminal gangs, is worth £2.86bn - more than the legitimate market in any country after America and Japan.

Record companies claim that a global fall in CD sales of 17 per cent over the past two years is largely due to file sharing. A spokesman for OD2 said: "This is the first time that consumers can access a huge library of legitimate digital music, download it and keep it on a pay-as-you-go basis."

The venture will also try to steal a march on high street retailers by putting new releases online as soon as they are made available to radio stations. These "gold" singles will be charged at a premium rate of £1.19 per track.

Analysts believe the move, which makes tracks available to 50 million potential customers up to six weeks before they reach the shops, will help revive the singles market, which has fallen by 35 per cent in Britain in the past five years.

The service follows the success in the US of Apple's iTunes, a similar virtual music store, which sold five million songs in its first two months and offers tracks from its catalogue of 200,000 for 99 cents (62p).

Microsoft denied the MSN Music Club was an attempt to take back territory gained by iTunes, which is not yet available in Europe. The Microsoft online shop, which is available across Europe, will feature artists including Ms Dynamite, David Gray and Kylie Minogue, as well as musicians from independent labels.

It is the first time the five main labels - Warner, BMG, Universal, Sony and EMI - have opened a substantial part of their catalogues to an internet provider such as Microsoft. But even with the financial and technological muscle of the company founded by Bill Gates, the record industry still has a long way to go to catch up with the free file-sharing sites.

According to Nielsen//NetRatings, which monitors internet traffic, the most popular free site, Kazaa, had 1.4 million users in Britain last month compared with 123,000 who used OD2's legal site, which is run separately from the MSN Music Club.

It is also unclear whether the record companies will be willing to provide all the new releases by their most bankable artists as well as back catalogues of bands such as the Beatles or the Rolling Stones.

MOST POPULAR DOWNLOADS

The top 10 downloads from the MSN Music Club site for the past week

1 Muse - Stockholm Syndrome

2 Christina Aguilera - Beautiful

3 Daniel Bedingfield - If You're Not the One

4 Coldplay - Clocks

5 Tatu - All the Things She Said

6 Beyonce - Dangerously in Love

7 Stereophonics - Maybe Tomorrow, pictured

8 The Coral - Pass it On

9 Killing Joke - Implant

10 Robbie Williams - Something Beautiful