HMV is to realise ambitions to become a "major force" in digital music by joining Microsoft to develop a downloading service.

The music retailer is to invest £10 million in the service, set for launch in the second half of next year, to exploit the growing market for buying music online legally.

However the service, which will be based around Microsoft's Windows Media Audio software, will be unusable by owners of Apple iPods, which account for nearly one-half of the market for portable digital music players.

"IPods are not compatible with Windows Media at the moment," an HMV spokeswoman said.

"However, while Apple has been incredibly successful, products based around Windows are going to push up their market share. It is going to be important that the service is compatible with Microsoft."

HMV said that its service, which will include a "jukebox" feature allowing customers easy management of music collections, would be usable on 75 portable players currently on the market.

The initiative will be developed by a joint team "combining the industry knowledge of HMV with the software development product expertise and consulting skills of Microsoft," Alistair Baker the managing director of Microsoft UK, said

The announcement comes two years after HMV launched, with OD2, a digital service allowing tracks to be downloaded from the retailer's website.

In September, HMV heralded further expansion into the market after noting that 100 million tracks had been purchased online in the United States in one year.

"HMV is determined to become a market force in this new channel to market," the retailer said, noting concerns about hardware and software compatibility.

"Uncertainty about how this market will develop requires us to select investment opportunities with considerable care."

Alan Giles, the HMV chief executive, said this morning that the company was "delighted" to be working with Microsoft.

"We have a unique opportunity to leverage the HMV brand…to establish a strong position in the newly emerging market for paid-for downloads."

The announcement was generally welcomed in the City, with Rhys Williams, the Seymour Pierce analyst, saying that HMV was investing a small amount in a market “which could prove
quite sizeable in future”.

HMV shares stood 7.5p higher at 253.5p in afternoon trade.

Times Recommends

• Lloyds TSB wins vote for HBOS merger
• Bank of England discussed 2% rate cut
• Woolworths dives as it confirms takeover talks