Microsoft battles Apple with MTV deal

By THIS IS MONEY
Updated: 02:58 EST, 15 December 2005

SOFTWARE giant Microsoft today promised a bumper 12% jump in its quarterly dividend and vowed to break Apple's iTunes dominance of the digital music market, in a deal with MTV Networks that will offer more than two million tracks for sale.

The new service, to be called Urge, will sell songs individually or as part of a subscription package and will also offer music over online radio. But the music will not be compatible with Apple's iconic digital player, the iPod.

Microsoft broke off talks with record labels to license music for a new online subscription service of its own a few months ago.

Urge will get around that with Microsoft providing the technology and Viacom's MTV Networks owning and operating the system.

It is expected to roll out next year and will incorporate Microsoft's Windows Media Player.

MTV Networks Music Group President Van Toffler said he chose Microsoft over Apple because Microsoft's Media Player software was used more widely.

Toffler said he disagreed with Apple's Steve Jobs iTunes vision of having a digital storefront for a la carte downloads and thought the subscription service would keep customers coming back.

The announcement came hard on the heels of a reorganisation plan at Microsoft.

It is aimed at defending the Seattle-based giant's traditional operating system markets while capitalising on the success of its Xbox games console to expand its entertainment business. Under the scheme, Microsoft will split its entertainment and devices division into four businesses.

The company is facing new competition from Google and others delivering software-based services over the internet that threaten to erode Microsoft's dominance.

Many critics believe Bill Gates has been slow to see the threat and say he is now rushing to catch up.

In an email outlining the changes, the chief of the entertainment and devices unit, Robbie Bach, who is responsible for launching Microsoft's Xbox video game business, told employees that he would turn his focus to longer-term strategy and partner relationships.

The moves, combined with the promise of a bumper nine cents a share dividend, compared with eight cents the previous quarter, is aimed at countering criticism that growth is slowing.

Microsoft paid out $44bn in cash to shareholders last year and has further share buybacks planned.