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Sony hopes to strike chord in online music

Sony (SNE) aims to take on industry leader Apple (AAPL) starting Tuesday with an online music service whose songs will play only on Sony products.

Internet analysts are scratching their heads, especially because the digital download service – called Connect – is geared toward supporting Sony’s MiniDisc, a 13-year-old format that has never hit big.

But some retailers say sales of MiniDisc players perked up in the two years since Sony added the ability to record digital music onto them. And Sony will introduce an offshoot of the MiniDisc in June, offering more storage at a lower price than competitors.

The 1-gigabyte Hi-MD disc will sell for $7 and hold 700 songs, Sony says. Because the new discs won’t play on older models, the company also is launching a line of Hi-MD players, ranging from $199 to $399.

Most other small digital music devices come in two flavors: hard-drive based or internal flash memory. A flash device with 512 megabytes of storage – roughly half the space of a Hi-MD – sells for about $200. The hot-selling iPod mini, with a 4-gigabyte hard drive, costs $250.

But independent analyst Rob Enderle of the Enderle Group thinks it’s way too late.

“Walk into a store,” he says. “You don’t see MiniDisc players promoted or people talking about them. Its time was three years ago, and it didn’t make it.”

Sony says Connect songs will work on portable CD players and Walkman devices that use Memory Stick removable flash media.

Sony says it has sold about 2.5 million Connect-compatible devices. By taking on industry leader Apple, Sony will compete with a company that has sold 3 million iPods and 70 million songs at its iTunes Music Store, which celebrated its first anniversary last week. Other digital music competitors: Wal-Mart, MusicMatch, Napster and MusicNow.

“We’re not trying to convert customers from one paying service to another,” says Jay Samit, Connect’s general manager. He wants to lure people who download from free services such as Kazaa and Morpheus to Sony’s pay service. “This is about broadening the entire audience.”

Market tracker Forrester Research says digital music will surge in coming years, to $4.4 billion in sales from downloads and subscriptions in 2008, up from a projected $308 million this year.

Sony plans to make a lot of noise with Connect. McDonald’s and United Airlines have signed on to give away songs in exchange for hamburger purchases and frequent-flier mile redemptions. Singer Sheryl Crow is helping kick off the service Tuesday with a concert for the press on a United flight bound for Los Angeles.

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