Amazon has options on Liquid Audio.

Amazon.com, the Internet_s largest retailer, has options to purchase a minority stake in closely held Liquid Audio, which makes software for digital-music downloads that Amazon.com is using to spur sales. Under the agreement, Amazon.com may purchase 381,203 Liquid Audio shares at $6.56 each, though undisclosed conditions must be met first, Amazon officials said. The shares would amount to less than a 10 percent stake in Liquid Audio. Vulcan Ventures, the investment vehicle of Microsoft co-founder Paul Allen, has a 7.2 percent stake in Liquid Audio. Amazon.com uses Liquid Audio technology to offer free song downloads to promote the compact discs that it sells online. Liquid Audio wants to boost popularity of the software, which encodes digital files and prevents unauthorized duplication. Amazon.com also has offered some downloads as MP3 files, which are easy to copy and unpopular with record companies that fear Internet music piracy. "Its very clear that digital downloads have an impact on sales," Amazon.com spokesman Paul Capelli said. Singer Sarah McLachlan_s "Mirrorball" became one of Amazon.com_s fastest-selling compact discs this month after being promoted for two days with free digital downloads, he said. Redwood City, Calif.-based Liquid is one of several companies vying for a slice of the Internet music business. Other companies such as Microsoft, RealNetworks and AT&T offer competing music formats. Liquid Audio has filed to raise about $36 million in an initial stock sale.