According to a report by Sm@rt Reseller's Mary Jo Foley, Microsoft is working on a new audio format that will compete with the wildly popular MP3 audio format. Dubbed "Microsoft Audio 4.0," the new format will supposedly create files that are only half the size of their MP3 equivalents. But MS Audio 4.0 also provides protection against illegal music downloading, a major complaint against MP3.

Microsoft has been mute on the technology, however.

"Microsoft does not comment on any unannounced products," Gary Schare, the lead product manager for Windows Media Technologies, told Sm@rt Reseller. "That said, Windows Media Technologies support playback of MP3 today. And we are very interested in improving on the platform. MP3 is a major phenomenon. Microsoft is very excited about more and more people using Windows PCs to play back, record and store MP3. But as a company making its living on digital intellectual property, we would not condone the illegal copying or use of digital audio.