NEWS - Friday, July 21, 2006

Microsoft Confirms iPod Media Player

Microsoft said on Friday it plans to release a new music and entertainment player and accompanying software under the "Zune" brand this year, in a belated attempt to challenge the dominance of Apple’s iPod player. Microsoft (Charts) confirmed the plans for an entertainment device and software in a statement after touting those products to record companies in recent months. The world’s largest software maker faces an uphill climb in closing the gap on Apple’s (Charts) iPod media player and iTunes Music Store, the runaway leaders in their respective areas. The iPod holds more than half of the digital media player market, according to research company NPD, while iTunes accounts for over 70 percent of U.S. digital music sales. "Creating a lifestyle device, Microsoft is clearly going to face a battle here," said Michael Gartenberg, research director at JupiterResearch. "It’s going to be hard for them to create the same level of cachet that Apple has with the iPod." Music industry sources told Reuters earlier this month that Microsoft disclosed plans to be in the market before Christmas with a media player that will allow users to download videos and music wirelessly. It will also try to replicate Apple’s simple approach to providing an integrated, seamless ecosystem for digital media is seen as the key to its success with iPod/iTunes, the sources said. Microsoft did not disclose pricing for the new media player or whether it would be willing to take losses on the hardware to make money from the sale of music, video and possibly games. This is the strategy it adopted with Xbox game console. "The iPod is going to be a tough nut to crack, but you probably could have said the same thing with Sony and the PlayStation and it has done a good job positioning the Xbox," said Toan Tran, analyst at Morningstar. Microsoft sources said Robbie Bach, president of Microsoft’s entertainment and devices division, is working with J Allard, vice president of its Xbox team, on the digital media player/software project. Allard’s involvement is seen as significant because he is one of the few executives at Microsoft with experience in launching a consumer electronic device from scratch with the X-Box gaming system. His involvement suggests that gaming might be part of the media player. A Microsoft spokesman was unavailable for comment. Analysts said Microsoft will be very aggressive marketing the product as it did with the Xbox. "It definitely is a big bet," said Morningstar’s Tran. "Microsoft definitely has its work cut out for it, but the company has massive financial resources and it’s very persistent."


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