A report in "The Wall Street Journal" states that Microsoft has broken off song licensing negotiations with four of the world's largest record labels, threatening the software giant's plans to launch a subscription music service through MSN Music. According to the report, Microsoft felt that EMI, SONY BMG, Vivendi Universal, and Warner Music Group (WMG) were demanding exorbitant royalty rates.

Today, Apple's iTunes Music Store, which offers only a la carte song and album downloads, dominates the online music business. But many analysts expect subscription music services to surpass song downloads in the near future. Today, companies such as Napster, RealNetworks, and Yahoo! Music offer subscription music services. Microsoft revealed its intention to move into subscription music last year when it launched MSN Music, which currently offers only a la carte downloads, albeit in a format that surpasses the quality offered by iTunes. "The Wall Street Journal" incorrectly notes that Microsoft hasn't announced plans for a subscription music service: The company has been talking about this service for more than a year.

According to the report, the record labels were demanding royalties that would have amounted to $6 to $8 per subscribed user per month. Because some of the current subscription music services cost as little as $5 a month, it's easy to see why Microsoft would find that rate unworkable. The report notes that Microsoft wants to offer consumers a price that is roughly comparable to the lowest-cost options that are currently available.

If Microsoft is forced to cancel plans for a subscription music service, it could have a chilling effect on online music sales. Combined with record label pressure on Apple to raise its a la carte pricing, it's clear now that the music industry still doesn't get digital technologies or, for that matter, a competitive market.