Microsoft's Zune Will Offer Video, Carry $299 Tag

By Amy Gilroy -- TWICE, 8/21/2006

Redmond, Wash. — Microsoft is in the process of unveiling to select retailers the first of its line of Zune wearable digital media players and informed retailers said it will offer a single unit this fall, available in three colors at a suggested retail price of $299.

Contrary to earlier media reports, retailers who have been briefed by Microsoft told TWICE the Zune will offer video as well as audio. It will also incorporate a larger screen than comparable existing Apple iPod models, which makes it better suited for watching video, they said. Apple, however, is expected to offer new iPod models this fall.

Retailers said the player will offer Wi-Fi capability to share songs with other Zune users. While Microsoft's ultimate goal is to allow on-the-go, over-the-air purchasing of songs, this capability will most likely not be available in the first Zune, due in November, they said. The initial Zune, will probably require that users connect to a PC to purchase songs.

Several of the retailers said they were pleased with Microsoft's feature-per-price package.

Microsoft plans to continue to support its PlaysForSure licensees, even while it launches its own media Web site and sells its own digital media player, effectively competing with these same licensees, said one retailer.

A Microsoft spokeswoman said the company is unable to provide details on Zune at this time. Microsoft, however confirmed in July that it will offer a new portable digital media product later this year under the Zune brand, with a family of products to follow. The company also stated at the time, “Microsoft will build a community for connecting with others to discover new music and entertainment.”

Under the most optimistic scenario, Microsoft could win up to a 10 percent share of the portable MP3 player market over Christmas, estimates Rob Enderle, principal analyst for the Enderle Group, San Jose, Calif. Speaking shortly after Microsoft's announcement in late July, Enderle said, “It's hard to believe that over a short period of time, even if everything is perfect, [Microsoft] could take more than 10 percent maximum and maybe 1 or 2 percent minimum.”

At least one MP3 player supplier said that Microsoft's initial Zune, if it hits the market at $299, would not dramatically affect the sales of some of the smaller MP3 suppliers. At that price, he said, many companies will still be able to compete at the lower end of the market.