By Courtney Macavinta, CNET News.com

Eager to spur digital music sales, Virgin Megastores will stock Diamond Multimedia's Rio 500 players and teach CD buyers how to use the devices to download tracks from in-store kiosks.

Virgin Entertainment Group's brick-and-mortar locations throughout the United States and Canada will let shoppers search for popular music using Virgin on Demand kiosks developed by Sony Music and then buy the tracks for storage on a Rio player. The devices will support specifications set by the recording industry's Secure Digital Music Initiative (SDMI) to curb the illegal copying of music.

The Rio is the first handheld device to be compatible with the kiosks, according to Virgin. In stores since July, the kiosks connect to a proprietary, high-speed catalog dubbed the "Red Dot Network," which includes recordings by Sony artists such as Mariah Carey, Ricky Martin and Lauryn Hill. Until now, kiosk users could only download digital music to CDs, DVDs or minidiscs.

"Virgin has always been the retail leader in the evolution of the retailing of entertainment media; downloadable music is the natural next step in that evolution," Russ Pillar, CEO of the Virgin Entertainment Group, said in a statement.

Virgin's Rio initiative will be closely watched as a sign of whether consumers are ready to start collecting and storing music for play on portable devices such as the Rio, Sony's Lyra and Creative Labs' Nomad. Such usage could eventually extend to home and car stereos in addition to computers.

The deal also will likely be the first in a string of relationships between Virgin Entertainment Group and the Rio digital music family. Virgin is considering an agreement with the music portal and software-maker RioPort.

"We are in discussions with RioPort," said Anthony Deen, vice president of retail design and development for Virgin.

RioPort was spun off from S3's Diamond Multimedia in October. Its software allows users to buy, collect, play and download digital audio tracks through its Web site and those of its partners, such as Viacom's MTV.com and VH1.com. RioPort also designs digital music delivery systems for third-party hardware companies, such as PC-TV devices.

"We are talking with Virgin about several things--from solutions that we provide as well as powering downloadable sites such as MTV.com," said Brandon Talaich, a spokesman for RioPort. "Virgin is certainly a company with whom we are talking to, but no deal has been made yet."

A deal between RioPort and Virgin Megastores could play out in several ways.

RioPort's software and content--it has a deal to securely distribute digital tracks owned by Universal Music, for example--could be incorporated into Virgin's in-store kiosks, its Megastore site or Virgin Jamcast, which offers digital music downloads.

In addition, tracks by artists on Virgin Entertainment's independent record label V2, such as Tom Jones, could be added to RioPort's collection of digital downloads. (The major label Virgin Records was sold to EMI in 1992.)

The deal also aims to expose active music buyers who shop at Virgin Megastores to Rio's brand. And a partnership with Virgin could help RioPort compete with sites such as MP3.com, which have grown in popularity because they offer free music downloads in the insecure MP3 format but arguably don't have the same connections to popular artists that RioPort is forging.

"We'll support whatever is SDMI-compliant," said Virgin's Deen.

So far online digital music sales have been minuscule, largely because of reluctance on behalf of the "Big Five" record labels, which don't want to digitize their albums before SDMI is widely in place. Still, companies such as EMI Recorded Music have signed up with Liquid Audio to securely encode its music for download.

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Thanks Anna!