Microsoft Will Add Video Games to Zune by July 2008 (Update4)

Jan. 8 (Bloomberg) -- Microsoft Corp., the world's largest software maker, will introduce video games for its Zune music player within 18 months to match features available on Apple Computer Inc.'s dominant iPod.

Peter Moore, a vice president in the company's Xbox video-game business, confirmed the plan yesterday, saying the Zune's large screen will offer a better way to play handheld games. He didn't specify what games would be offered.

``I love the interface, I love the screen,'' Moore said at a dinner with reporters during the Consumer Electronics Show in Las Vegas.

Zune, introduced in November, has failed to take market share from Apple's iPod, partly because the device lacks iPod features such as games and TV programs, said Michael Gartenberg, an analyst at JupiterResearch. Exclusive Zune features, including a wireless connection to other Zune devices, don't work very well, he said.

``It's not like the music enthusiasts have been flocking to Zune, and they need to really answer Apple in terms of feature parity,'' said Gartenberg, who is based in New York. ``But they will also have to find ways to differentiate. If all they do is hit parity with iPod, they don't win.''

Zune Sales

Microsoft has sold ``hundreds of thousands'' of Zune devices,'' said Robbie Bach, president of the company's entertainment and devices division, in an interview.

Microsoft expects to sell more than 1 million of the players by June 30. That compares with iPod's estimated sales of 17 million in just the fourth quarter, according to Merrill Lynch & Co. analyst Richard Farmer in New York.

If Microsoft offers popular games for Zune, the device might provide competition for handheld gaming devices such as Nintendo Co.'s DS and Sony Corp.'s PlayStation Portable. Sony's PSP also plays music.

Zune debuted in second place in the $4 billion U.S. market for digital-music players during its first week on sale, according to market research firm NPD Group Inc. It then dropped to fifth place the following week. Gartenberg and other analysts don't expect the current version of Zune to take market share from the iPod.

Craig Lile, a music blogger who Microsoft flew out to its Redmond, Washington, headquarters to get an early preview of Zune, put the device in the top spot on his list of ``Busts and Breakups of 2006,'' above the movie ``Snakes on a Plane.''

Microsoft Pleased

Microsoft's Bach said he's pleased with Zune's progress. ``We see a lot of positive traction and good customer feedback on the product,'' he said. ``We are going to continue to invest for the foreseeable future.''

Adding video games is one of several upgrades Microsoft executives have planned for Zune.

In November, Chief Executive Officer Steve Ballmer said the company wants to add wireless video sharing to Zune and sell a model that combines the player with a phone. The following month, Vice President Bryan Lee said Microsoft wanted to build models with data-storage drives of different sizes and to develop players based on flash memory rather than disk drives.

Shares of Redmond, Washington-based Microsoft rose 29 cents to $29.93 at 4 p.m. New York time in Nasdaq Stock Market composite trading. Cupertino, California-based Apple climbed 42 cents to $85.47.

To contact the reporter on this story: Ari Levy in Las Vegas at alevy5@bloomberg.net; Dina Bass in Seattle at dbass2@bloomberg.net

To contact the editor responsible for this story: Emma Moody at emoody@bloomberg.net