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The NY Times reports that Microsoft is developing its own hand-held music and video player to challenge Apple iPod and expects to have it in stores in time for the holiday season.

Microsoft’s digital device would be equipped with at least one feature the iPod lacks: wireless Internet capability that would allow users to download music without being connected to a PC.

Microsoft’s device, which is similar to an existing player that uses the company’s software, would also have a more advanced video screen, according to the executives, who did not want to be identified because they were not authorized to discuss the device.

The company has also held negotiations, the executives said, with major record companies and some major television networks in order to settle on terms that would allow it to sell music and video content online through a service similar to Apple’s iTunes Music Store.

The portable player would represent Microsoft’s most ambitious effort yet to compete with the iPod, which has generated billions of dollars in sales and turned Apple into the dominant retailer of digital players and music.

Microsoft’s software is currently used by manufacturers like Samsung, Sony, Creative Technology and others. Now Microsoft will sell hardware players, too.

Music industry executives have complained about Apple’s control over the digital music market and its power to determine pricing of songs and albums.

Of course Apple is not likely to sit on its hands. Apple Insider says Apple registered a total of 10 new iPod interface designs with a European trademark and design office. They depict versions of both the iPod nano and fifth-generation video iPod. According to the drawings, Apple may abandon its Click-Wheel interface in future versions of its iPod digital music players.

Wireless access to music is available now, of course. The $299 Gremlin music player has built-in Wi-Fi, so it can download songs from an accompanying subscription service directly, without requiring the use of a personal computer or can transfer music from a PC to the device.

Zing has a similar player, complete with music infrastructure. The Zing reference player has both a built-in speaker and a microphone, which, combined with the Wi-Fi radio, means it has all the hardware a voice-communication platform needs. It can also stream music via Sirius WiFi.

Mobile television players and their infrastructure may also be a factor. M2Z thinks it can play this game using the 1.7-2.1 GHz band (AWS). But a mobile broadcast partner like Modeo at 1.670-1.675 GHz, would help. So would 700 Mhz mobile broadcasters like HiWire on channel 54 & 59 and MediaFLO on channel 55.

Related DailyWireless articles include; Zing Go the Strings, WiFi Gremlin Music Player, WiFi TV, MediaFLO Gets Satellite Backbone, Mobile TV: The Battle is On, New Mobile TV Flavor: TDtv, Verizon Goes with FLO, Global Mobile Television, T/W, Cingular: On Demand, DVB-H Headend Software, Intel On DVB-H, U.S. Gets MobileTV via DVB-H, The 700 Mhz Club, 700 Mhz Worth $28B, The 700 Mhz FCC Auction, Winner of the Triple Play, Satphones Localize, TiVo on a Stick, Clear Channel Podcasting, Multicasting the Olympics, WiMax Handsets, Laptop Television, Sirius Portable Radio, U.S. Broadband Policy?, XM Buys 2.3GHz, Sprint Gets Sirius, MPEG-4: Satellite, Cable & Wireless, Satellite TV on Cell Phone?, Sprint Bundles EchoStar, Satellite WiFi, DirecWay Modem Shares Access, Satphones Get Giant Antennas, U.S. Cellsats and FCC Approves Big Mobile Sat.

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