Microsoft sets $250 price for Zune, songs will sell for 99 cents

Thursday, September 28th, 2006

USA Today

The 30-gig Zune will sell for $249.99, 99 cents higher than the iPod with the same amount of storage.

SEATTLE (Reuters) — Microsoft said Thursday its new Zune music player will be sold at a price matching Apple Computer’s market-leading iPod and, as a result, lose money this holiday season.

Microsoft’s 30-gigabyte Zune will retail for $249.99 — 99 cents higher than the iPod with the same amount of storage — when it goes on sale Nov. 14. Songs available for download at the Zune Marketplace service will cost about 99 cents a song, on par with prices at Apple’s iTunes, Microsoft said.

The world’s largest software maker faces an uphill climb in trying to topple the popular iPod after conceding a five-year head start to Apple’s media player.

The Zune aims to compete on features, not price, said an analyst. “They’re not getting into a pricing war,” said Michael Gartenberg, an analyst at technology and media research firm JupiterKagan Inc.

“It will be a competition of features versus features, form factor versus form factor, winning the hearts and minds of consumers with something other than price,” Gartenberg said.

Microsoft said it needed to put a comparable price on Zune, even if it meant that the company will suffer a loss from the device’s sales this holiday season.

“We had to look at what was in the market and offer a competitive price,” said Scott Erickson, Microsoft’s senior director of product marketing for Zune. “We’re not going to be profitable this holiday but the Zune project is a multiyear strategy.”

The Redmond, Washington-based software giant has said it plans to invest hundreds of millions of dollars to develop and market the Zune, and acknowledged the investment may take years to bear fruit.

The rectangular Zune media player has a round click wheel and is similar in appearance to the iPod, though slightly bulkier and has a larger 3-inch screen.

Unlike the iPod, Microsoft aims to attract users to the Zune’s ability to share photos and songs, on a limited basis, to one another.

Gartenberg said such features, although clearly different from Apple’s approach, has yet to garner consumer interest, based on Jupiter polls. About 11% of U.S. online consumers were interested in such legal file-sharing features, according to JupiterKagan research.

Interest rose to 18% in the younger 18 to 24 age group, Gartenberg said. “Because consumer interest is low, there needs to be some education in the market,” he said.

Shares in Microsoft, which hired Japanese electronics maker Toshiba Corp. to manufacture the Zune, rose 2 cents in early Nasdaq trade on Thursday to $27.46.

The music player is the first step in creating a new brand of portable devices, according to Microsoft officials, who also said a Zune phone is in the works.

Microsoft said it will sell a music subscription pass for $14.99 a month, allowing users to listen to any of the songs on Zune Marketplace. It pledges to offer 2 million-plus songs at launch. After the pass expires, users will not be able to access those songs.

For consumers looking to own a song, the Zune Marketplace will sell tracks for 79 Microsoft points. A user can buy 80 Microsoft points for $1 and points will also be redeemable at its online video game store, Xbox Live Marketplace.

Microsoft said it will initially sell only music — and no video — at the Zune Marketplace. The company said it was negotiating with major record companies and labels.

Each Zune device will come preloaded with an array of songs, music video, images and short films, Microsoft said.


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