Microsoft ( MSFT) plans to release a portable digital media player by the holiday season this year that will rival Apple Computer's ( AAPL) iPod, according to published reports.

Unlike the iPod, Microsoft's player will incorporate a wireless radio that will allow users to download songs and videos directly without connecting to a computer, according to the reports.

To complement the new device, the company also is developing some new media software that could potentially integrate an online music store similar to how Apple's iTunes works, according to Reuters. To promote the device, Microsoft plans to spend "significant marketing dollars," Reuters reported.

A Microsoft representative declined to comment. Representatives for Apple did not return calls seeking comment.

Rumors of Microsoft unveiling such a device have been floating for weeks. Industry analysts could not confirm the published accounts but said they are plausible.

The move would mark a major change in strategy for Microsoft and could mean a significant threat to Apple's dominance in the digital music market.

Microsoft has previously attempted to compete with Apple by licensing its Windows Media software to various partners. Dell ( DELL), for instance, offers music players that play Windows Media encoded songs which customers can download from stores such as that run by Napster ( NAPS).

But that strategy has been a failure to date for both the Microsoft's service and hardware partners. Apple's iPod players hold more than 70% of the digital music player market in the U.S. and lead in worldwide market share.

Mike McGuire , an analyst with Gartner, said Microsoft certainly has the ability to create a version of the iPod, but success in that market would not be a slam dunk. "Putting the hardware and the software together in a meaningful way will be expensive and difficult," he said. However, he also noted that Apple dislodged Sony's ( SNE) Walkman from its position as the de facto standard for digital music, and it would not be impossible for Microsoft to do the same to Apple.

Microsoft still gets the bulk of its sales from software such as its Windows operating system and Office suite. But the company has offered a number of consumer electronics products in recent years, most notably its Xbox video game system.

The first Xbox lost billions of dollars, but the company has positioned itself to capture share -- and potentially profit -- with its second-generation device, the Xbox 360, which launched a year ahead of Sony's upcoming rival machine.

Leading the charge on developing the new digital media player are reportedly veterans of the video game wars, Robbie Bach, president of Microsoft's entertainment and devices division and J. Allard, vice president in charge of the company's Xbox efforts. Assuming the reports are correct, the company may be attempting to apply the lessons it has learned in the video game space.

"It would be a natural step for Microsoft to do its own hardware that is easier to use with PCs and supports the latest technology for transferring music and protecting it," said Rob Helm, research director for Directions on Microsoft, said.

Investors seemed to shrug off the news. In after-hours trading following the reports, shares of Apple were off 14 cents, or less than 1%, to $56.86, while shares of Microsoft were unchanged at $23.35.