Now, this is a fairly spontaneous rumor with little proof, so this one must be taken with a grain of salt: Microsoft is reportedly in talks with record labels on creating a new music service that caters to the Xbox and "an upcoming Windows-based phone".
The phrasing here used by CNET, who broke the story, is fairly bizarre; it sounds as though they are insinuating that a single Windows-based phone will utilize the service. They also mentioned that there is the "possibility of teaming with HTC and Nokia on the proposed phones". Perhaps their source was referring to an upcoming major Windows Phone update?
Hopefully the service isn’t limited to select Windows Phones; this would be a colossal issue of fragmentation. It would also greatly lessen the use of the service. The market share of Windows Phone is already quite low, so limiting the devices will only further lessen use.
Moving on; as we know, Microsoft’s existing music service, the Zune Music Pass offers music streaming and downloads on the PC, Xbox 360 and Windows Phone. The differences between the rumored service and Microsoft’s existing Zune Music Pass are unclear, but given the pronounced-dead status of the Zune brand, it is likely that it will be the service’s successor, effectively leading Microsoft to retire the Zune Pass.
What’s interesting here as well is Microsoft’s continued pursuit of offering music streaming.
A frequent discussion as of late has been the flawed business model of popular streaming services like Spotify and Rdio that make it near impossible to generate a profit through streaming. Microsoft will certainly be able to fund and sustain a streaming service without VC funding, but what will they have to gain? Should they see great success with this new service (it’s plausible, there are 40 million worldwide Xbox LIVE Gold subscribers), perhaps they could even begin losing money on streaming.
Perhaps, on top of other matters of licensing, Microsoft are also trying to discuss a viable model to offer streaming. That would be crazy. Perhaps what the streaming industry needs is the efforts of a large company to disrupt it? It would be peculiar if this is Microsoft’s ambition, and even more so if they succeed at something so radical. They’re currently the underdog in the music industry; something like this could be expected of Apple with its highly-successful iTunes platform and $100 billion cash pile. I’ll stop myself from speculating any further, though.
As usual, Microsoft declined to comment on the rumor. We’ll just need to wait and see how this pans out.