LAS VEGAS (CNNMoney.com) - Bill Gates aims to take over your living room and late Wednesday he unveiled a new music service and new software to do it.

Using an appearance with Justin Timberlake, the Microsoft chairman debuted a new music service, Urge, to directly compete with the iTunes music store and interface. Urge launches with over 2 million tracks for purchase or as part of an all-you-can eat subscription, an option the iTunes music store doesn't have. The offering will include exclusive material from MTV, though it will not be compatible with iPods, which are currently the most popular MP3 player.

CONSUMER TECH FORECAST Here are the tech toys you should buy now -- and the ones worth waiting for. FORTUNE special report CNN.com: CES Showcase Hold off on biting into the new Apple Wait for more information about the shift to Intel chips before buying a new Macintosh. Full story Intel's power play The new lineup of Yonah chips and Viiv computers reflects a major shift in the world of PCs. Full story Remember the Betamax The smart money will wait out the standards war before buying a high-definition DVD player. Full story Waiting for Windows Vista There's no need to hold off until the new operating system is rolled out to buy a new desktop PC. Full story Satisfy your need for higher WiFi speed Single standard still has to be hammered out, but it's fairly safe to upgrade your devices now. Full story

Here come the gadgets Intel, Microsoft and Sony are all making big announcements at the Consumer Electronics Show. See our CES preview. More from Las Vegas • Gates unveils rival for iTunes • Lenovo's coming out party • Intel's new plan: Inside everything

Quick Vote Are you looking for an alternative to iTunes?   Absolutely   No way   Depends on the product or View results

Music is just one part of Gates' vision for the impact he hopes Microsoft (Research)'s software will have on entertainment. Speaking at the annual Consumer Electronics Show in Las Vegas, Gates outlined his vision for a future where entertainment integrates with practical applications like messaging, word processing and Web browsing, with software that can work across various devices.

"We've talked about this as decade of digital lifestyle, work style," he said. "What that means is all these tools become mainstream. Software will come in and make things both simpler and more effective. Not having to think about disks, entertainment, having a digital jukebox anywhere in the house so you can call up the movies you want and see anything you want to."

Gates' vision extends to TV as well. Gates announced a partnership with Direct TV and its British Counterpart, BSkyB. The Direct TV partnership will allow consumers to get Direct TV video onto a Windows Media Center PC as well as on its gaming console, the Xbox 360.

"These (partnerships) will allow you to enjoy high definition content and take that away on a portable media device" for what Gates called both the "two-foot experience and the 10-foot experience."

At the core of these enhanced media applications is Microsoft's partnership with Intel around Viiv, Intel's new chip designed for entertainment PCs that allows consumers to run various entertainment applications as well as record, pause and rewind and fast-forward through video.

Michael Gartenberg, vice president and research director of market research firm Jupiter Research, said Gates spelled out more clearly than he ever has his vision for how Microsoft's software can integrate entertainment applications.

"They did a good job of taking a complex message, simplifying it, and putting some clarity around their vision for the digital home," he said.

Gartenberg added that he is interested to see whether "the other shoe will drop" at next week's MacWorld Expo, where Apple is expected to unveil its first Macs with Intel chips as well as enhanced media software and more content deals for its video iPod. This could mark competition for Microsoft in the digital home turf war.

A centerpiece of Gates' digital living room will be Vista, Microsoft's first upgrade to its Windows operating system in five years, which will include enhancements to Microsoft's Windows Media Center software to enable all the souped-up new applications. And users can use Vista to by-pass the TV and plug directly into high-definition cable feeds.

Also unveiled in Vista: a new interface with features including live preview in the task bar, which will allow users to see all applications as they are running, as well as a "3D" bar that lets users flip through applications.

The company also discussed HD-DVD, which allows for greater interaction for consumers watching DVDs. For example, users can search and find information on actors in a film while the movie is still playing.

Microsoft indicated that later this year, it will start selling external HD-DVD drives, which will enable users to watch high definition DVDs via their Xbox machines and also allow greater interactivity. At the outset, the new drive will be only for movies and does not include games.

Xbox executive Peter Moore reiterated that the company hopes to achieve sales of 4.5 to 5.5 million Xboxes by June 2006 and said they are "on track" to achieve those targets.

Whether Gates' vision will goose the long-stagnant stock price of Microsoft (Research) remains to be seen. Shares have been trading in a range from around $25 to $30 a share for going on three years and closed Wednesday at $26.97 in advance of Gates' speech, which took place hours after the market close in New York.

__________________

For a look at Lenovo's plans for a coming out party, click here.

Plus: Internet people and products to watch. More here.