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Dealers Told Of Microsoft Audio Player

7/13/2006 01:39:00 PM Eastern

New York — Retailers have told TWICE that Microsoft will offer a portable digital audio device under its own brand name this November in time for the Christmas selling season.

The retailers said they were briefed on the new portable audio player by Microsoft, but the company would not confirm the reports, stating, “We don’t have anything to announce at this time.”

Recent published reports from unnamed Hollywood sources said a Microsoft-branded media player will ship in November with wireless capability to download music over the air, as you go, and will likely offer video capability. Microsoft is also expected to launch its own media-download Web site, as well as its own player and software, in what is known as a complete “end-to-end solution.”

A story in the Seattle Times last week said the player would be sold under the Xbox division and that Microsoft would offer a portable with gaming capabilities. It was unclear if this would be a separate portable or one and the same as the audio player and Microsoft did not confirm this report either.

CE sources contacted by TWICE said they were briefed only on a portable audio device that may or may not include video. Both retailers confirmed Microsoft aims to offer a complete “end-to-end solution.” Both retailers said video may be offered initially or in the future.

Microsoft is very interested in emulating Apple’s “end-to-end” approach to the market, said one retailer. Until now, Microsoft licensed its “PlaysForSure” software to other vendors and Web sites (a practice which some industry members expect would continue).

Some questioned the chances of success of a Microsoft branded media player. They wondered if Microsoft would be able to do a better job than its licensees, which together have won only 25 percent of the MP3 market, compared with Apple’s 75 percent share, according to analysts.

Stephen Baker, industry analysis director of The NPD Group, Port Washington, N.Y., said the question to ask is: “Why does Microsoft feel they have to tread on all their partners, coming into a market where many companies have tried to develop a product to compete with the iPod and haven’t been successful?”

“I don’t believe they can do a better job of designing a product or integration. They certainly can’t do a better job in terms of distribution. They don’t have any more distribution clout than a Samsung,” continued Baker.

Microsoft PlaysForSure licensees include Samsung, Archos, Creative Labs, iRiver, Philips, RCA, SanDisk and Toshiba.

A spokesman for Toshiba said the company prefers “not to comment on anything without an official announcement by Microsoft.” iRiver and Samsung did not respond to TWICE inquiries.

Adam Davis, buyer for R.C. Willey, also noted, if Microsoft does in fact enter the market, it would be faced with an uphill battle. “You are going up against Apple — in our store they have a 90 percent share. We’re talking about a freight train called the Apple iPod. And the iPod is also a fashion statement.” He added, “It will be interesting to see what it looks like.”

Baker also said, “My question would be if Microsoft is so unhappy, why aren’t they spending more money on marketing PlaysForSure, and their DRM solution? It’s going to make their partners unhappy. It’s going to take away sales from their partners. Why would I as a Samsung, or iRiver, or SanDisk build products in that category when the company whose software runs the market is trying to undercut me? It would be like Microsoft coming out with a PC.”

Microsoft would enter the market at a time when MP3 growth is expected to slow from its heady days of double- and triple-digit monthly gains, according to analysts. The Yankee Group, Boston, said that the installed base of the players in the United States should reach saturation in 2007, while IDC, San Mateo, Calif., estimates that MP3 player growth in the United States will peak in 2008.

Apple is expected to offer a wireless iPod in the near future, according to published reports. As a policy, Apple does not comment on future products.

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