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Apple Is Under Siege in Digital Music

Stocks in this article: MSFT AAPL AMZN

A lot has changed in the digital-music industry over the past few years.

These days, online downloads account for 20% of music sales and are expected to overtake sales of compact discs by 2012, according to a recent report by Forrester Research (FORR).

Digital music has gone legit. It's been embraced by the music industry at large, and loads of companies from record labels to phone companies are jockeying for a cut of the billions being spent on digital music every year.

Apple's (AAPL) iTunes store has become the standard bearer for (legal) online music retailers, with some analysts estimating the company's market share at 85%. But the proliferation of other online music stores and rising competition from Microsoft (MSFT) to Verizon (VZ) has begun to threaten Apple's dominance.

For starters, major record labels, including Universal Music Group (UMG), Sony Music Entertainment (SME), Warner Music Group (WMG) and EMI, have in the past year been busy signing deals with music sellers such as Best Buy (BBY)-owned Napster, (AMZN) and Rhapsody. As a result, digital-music retailers have full access to the major labels' immense music catalogues.

Here's a rundown on the companies aiming for a slice of the fast-growing digital-music industry and why consumers might start looking beyond iTunes.

Zune is Microsoft's digital-music software. In addition to organizing your music and videos, the software offers access to Zune Marketplace, an online music store much like Apple's iTunes Store. For $14.99 a month, you can sign up for a Zune Pass, which allows you unlimited downloads. You can listen to those downloads for as long as you hold a Zune Pass subscription, but you can choose 10 tunes a month to add to your permanent music library. The Zune store is engineered to work with Microsoft's Zune MP3 player, which holds up to 30,000 songs and can be synced to your Zune's software.

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