OD2 announced new music browsing software and commenced its side of the battle for digital music in Europe this morning with a pitch on price.

As Apple prepares to announce iTunes Music Store June 15, OD2 took the wraps off its own new jukebox software, a plug-in for Microsoft's Windows Media Player 9 called SonicSelector. Like most services bar iTunes Music Store this software is not Mac-compatible.

The company also introduced a new business model to the industry, 'pay as you go'. Under OD2's pay as you go digital music consumers in the UK, France, Germany and Italy can stream tracks in full through their Windows PCs for as little as a penny per play. The new software and the service is available through MSN, MTV, Packard Bell and Tiscali. The service will be available in Belgium from June 24 and in Spain "later in the year", said OD2 CEO Charles Grimsdale.

The company's SonicSelector software lets consumers browse through OD2's 350,000 tracks from 12,000 artists, stream tracks, buy and download them, burn acquired tracks to CD and track transfers to portable music players using Windows Media.

It also offers a recommendation engine that monitors user search queries and matches them against the listening habits of the entire database of music fans and recommends other tracks users may enjoy.

The company is competing on price, with track prices starting at 75p each, rising to £1.49 for pre-release songs. Grimsdale revealed that on average tracks cost "99 pence". For two weeks OD2 is offering tracks through SonicSelector at half price, and offering £10 worth of free tracks with every £10 spent. This supplements the company's existing bulk purchase discount: buy £20 of tracks at 10 per cent off; or buy £40 of tracks at a 25 per cent discount.

Europe taxes online sales

Asked why song prices are higher in Europe than in the US, Grimsdale explained: "First, it's because online sales attract sales taxes in Europe, which are not applied in the US".

He added that European labels are offering their catalogues at "different price points in Europe than in the US."

"We buy catalogue at different price points," he said, adding, "labels feel the market will support multiple prices, charging more for digital pre-releases, for example." He added his observation that brick-and-mortar music retail experiences concerning CD price point differences bear out music industry claims.

Grimsdale welcomed new operators to the market, saying their debut in the US has impacted positively on his company's sales. He revealed that since Napster launched in the UK, OD2 has seen its sales "climb 30 per cent".

He added that the difference in OD2's catalogue of 350,000 tracks and the catalogue available from Napster is mainly due to the latter firm's ability to bring tracks to market sourced form US independent labels.

"Around 40-50 per cent of our catalogue is local and European," he said," OD2 will remain very focused on maintaining the best Euro-centric catalogue," he promised.

Apple's 'excellent job'

Discussing Apple's decision to use its own FairPlay digital rights management system that is currently incompatible with devices or services not made by that company, Grimsdale said: "Until Apple licenses FairPlay it is hard to see a solution to the format incompatibility problem. My guess is that we will see gateways between these formats appear in the not-too-distant future, probably within 12-18 months."

Grimsdale also disputed Apple's claim to hold 70 per cent of the US market for legal downloads, saying: "30-40 per cent is what I'm hearing."

Despite this he said: "There is no doubt Apple has done an excellent job popularizing the digital music market," and conceded this had impacted on OD2's own sales.

Microsoft is developing new technology (Janus) that will allow subscribers to digital music streaming services to download and listen to tracks on certain enabled digital music players running Windows Media.

Asked how content providers would feel in licensing major catalogues of music for such services, he could only say: "The labels require that you pay for all the content that you use," conceding "you have to be very careful with the price point you set."