By Rhys Blakely

Apple’s dominance of online music and the music labels’ best efforts to fight piracy are set to be dealt a blow from an unlikely quarter – PepsiCo, the fizzy drinks group.

Pepsi is preparing a year-long marketing campaign in the United States in which up to a billion digital music tracks will be given away. Based on the prices charged by Apple, the largest online music retailer, the offer could be worth up to $1 billion (£490 million).

Crucially, the drinks group is believed to be teaming up with Amazon.com, the online retailer vying with Apple’s iTunes music store, to distribute the giveaway tracks.

It is also thought that the music will be distributed free of the digital rights management (DRM) technology that limits where legitimately downloaded tracks can be played.

Much of the music industry has championed DRM as the best weapon that it has to combat soaring levels of online bootlegging. Apple, meanwhile, has used DRM to lock consumers into its iPod players.

It is understood that Universal and EMI, the two big music groups that have abandoned DRM amid widespread consumer dissatisfaction, are the prime candidates to sign up to the Pepsi offer.

There is speculation that PepsiCo’s huge distribution of DRM-free music could compel other labels, such as Warner Music and Sony BMG, to use the format. This year Steve Jobs, the chief executive of Apple, said that he would drop DRM “in a heartbeat”, but claimed to have had his hands tied by the labels.

Edgar Bronfman, the chief executive of Warner Music, said later that Mr Jobs’s argument was “completely without logic or merit”.

Pepsi’s promotion – the latest shot in its long battle with Coca-Cola – is to start in February, in concert with the Super Bowl, one of the biggest advertising magnets in the world. It echoes a giveaway in 2003, in which Apple and Pepsi offered 100 million free tracks Amazon’s music ambitions need a boost. Since it began its download service in September, it has captured an estimated 3 per cent of the market. By contrast, Apple accounts for about 80 per cent and in July said that it had sold more than three billion songs.

Last week, Warner Music, the only remaining publicly traded music label, underscored the industry’s plight when it unveiled a 58 per cent slump in fourth-quarter profits. The fall came as increased digital revenues failed to offset a collapse in sales of physical formats outside the US and the ongoing effects of piracy.

The numbers rounded off a miserable year for Warner, in which the group’s shares have lost nearly 70 per cent of their value.

PepsiCo is planning to place tokens on five billion drink containers. Consumers will have to collect five tokens to qualify for free tracks. In theory, the campaign could flood the market with $1 billion of free music (Apple charges 99 cents per DRM-free track), but redemption rates on these types of offers are usually low, at about 2 per cent.

A spokesman for Pepsi was not immediately available to comment.

Apple, once best-known for modish but niche computers, is one of the few companies to have profited from the shift to digital music – a trend that has led to a slide in sales of albums as fans cherry-pick their favourite tracks and overlook the rest.

Despite Apple’s success, online music sales still account for only a tenth of the total market and are not yet growing at a rate to compensate for the decline in revenues from CDs – sales of which have fallen by about a fifth in America this year.