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Microsoft to Challenge Spotify, iTunes With Xbox Music Streaming Service

Microsoft's new music streaming service will replace its defunct Zune

Microsoft plans to release an Xbox music service that combines Spotify-style streaming with the download and storage features of Apple's iTunes.

The software giant, which took on Apple earlier this month with the unveiling of an iPad-style tablet, is apparently negotiating with major record labels for music rights and plans to begin the service later this year, according to a Bloomberg report citing anonymous sources.

Microsoft appears to be building a digital product that allows its customers freedom to consume music in any way, after the company's first foray into the music business was a bust. Customers on its poorly-received Zune service will be moved to Xbox Music, the company said on its website.

Also read: Microsoft Unveils the Surface, a Tablet to Rival Apple's iPad

Vivendi SA's Universal Music Group, Warner Music Group, Sony Corp.'s music division and Citigroup's EMI are negotiating with Microsoft, according to Bloomberg.

All four music companies and Microsoft did not respond to requests for immediate comment.