According to a report in the UK Telegraph, Microsoft is set to launch a new music service this month.  The new service “will offer users the chance to stream music for free and also download to own”.  According to Executive Producer for MSN Peter Bale:

“Music is an important area for Microsoft. We are looking at launching a music streaming service imminently.  It will be a similar principle to Spotify but we are still examining how the business model will work.

Microsoft closed its MSN Music Download service in 2006, but had offered music downloads in partnership with Nokia through MSN UK and MSN Germany.  Those services were shut down in March, in anticipation of an “exciting new service” coming to MSN.

While Microsoft is still “looking at how other similar businesses have structured their business models and trying to figure out what will work best for both consumer and Microsoft”, according to Bale, but the service will draw on lessons learned from Zune, which offers a subscription service for music downloads.  MSN will be promoting the new service along with “other parts of the Microsoft network”, and the UK Telegraph report hints that Xbox will be involved as well:

He also hinted the service could be tied in with Microsoft’s Xbox gaming console, but would not be drawn on the details of how a partnership would work. The addition of a Microsoft-owned music streaming service would tie in with an increasingly consumer focussed strategy from company to make its Xbox 360 console the main “entertainment hub” in the family home. Users are already able to download movies through their console and play games against one another online.

Will this new service be an expanded version of ZunePass, which seems to have been gaining traction, a revamped MSN Music Downloads, or a completely new service?  We should be finding out soon.