Microsoft is to release an enhanced Media Player that can send high-definition video and surround-sound audio over the internet.
The Redmond giant said that chairman Bill Gates would unveil the new system, code named Corona, on 4 September.
The move is a direct attack on RealNetworks, which leads the online digital software arena with a 16.2 per cent market share, compared with Microsoft's 14.4 per cent.
Dave Fester, Microsoft's general manager for digital media marketing, told Reuters that specific features of the Media Player would be kept under wraps for another seven weeks, but he emphasised that it would be a "dramatically enhanced player".
Key features touted by Microsoft include near-instant playback that gets rid of the initial delay when streaming web content, high-definition television-grade picture quality, and Dolby Digital that delivers surround-sound over five channels and a subwoofer.
Users will need a broadband connection and new audio/visual hardware to take advantage of the new features, although Fester maintained that users with conventional dial-up speeds and hardware would still benefit from the enhanced features.
The downside is that it will be harder to use Media Player to copy CDs or other musical content.
Fester explained that the Windows Media 9 Series includes the latest digital rights management software, which aims to prevent the improper use of copyrighted digital content.
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