Microsoft is said to be planning a rival to Apple's phenomenally successful iPod music player and iTunes music service.

Sources close to the discussions claimed that Microsoft has already demonstrated a device that plays music and video, and has held licensing talks with the music industry to form its own music service, according to a report from Reuters.

Microsoft is remaining tight-lipped about the developments, and has not mentioned a possible launch date.

The software giant already provides the copyright framework for some worldwide subscription music services, none of which has been able to shake Apple's domination of the market.