Watson had just returned home from a gig at Copacabana in West Philadelphia early Saturday when Murray and another suspect allegedly rushed him from behind, police said.
Watson lived above the ice cream shop, and to gain access to his apartment had to go through it.
Security footage shows Watson trying to fight off his attackers as they beat and dragged him behind the counter, the sources said.
Then, police sources said, Murray allegedly shot Watson in the face and one side. Watson died at the scene.
Police are still searching for additional suspects.
A friend had driven Watson - who deejayed under the name "DJ Fenicx" - home from his gig around 3:30 a.m. The friend helped him unload his gear in the doorway of the store.
As the friend walked back to his car, he noticed the equipment still in the doorway and went back to check if everything was all right, police said.
One of the attackers blocked him at the doorway of the store, telling him, "Get the [expletive] out of here," police sources said.
The witness then heard shots from inside.
Police collected surveillance footage from nearby stores on South, and one resident who lives on nearby American Street said his home security camera captured clear shots of at least two of the fleeing suspects.
Police recovered a pair of gloves and sweatshirt, which they think one of the suspects threw off as he ran away.
Two weeks ago, a neighborhood pharmacist was robbed and shot near Fourth and Pine Streets.
And last July, Michael G. Hagan Jr., 32, an information-technology consultant, was shot and killed during a late-night robbery at Fourth and Lombard Streets. That killing remains unsolved.
Police believe Hagan's death is unrelated to a 2011 attempted robbery and shooting at Fourth and Pine that left a 46-year-old man paralyzed. That shooting also remains unsolved.
Hours after the killing Saturday, Watson's friends gathered at O'Neals Pub near South Street, remembering Watson as a beloved deejay well-known in the area for his music and his easygoing manner.
"He was an incredible musician, really an artist. The most positive . . . mild-mannered man ever," said one person, who declined to identify himself. "He was hoping to teach people how to deejay . . . and for free, not charge anything. He's just a giving soul."
Contact Mike Newall at 215-854-2759 or firstname.lastname@example.org., or follow @MikeNewall on Twitter.