Microsoft Is Said to Stop Releasing New Models of the Zune

Microsoft Corp. (MSFT) will stop introducing new versions of the Zune music and video player because of tepid demand, letting the company shift its focus to other devices, according to a person familiar with the decision.

Microsoft will concentrate on putting Zune software onto mobile phones, such as those running its Windows operating system, said the person, who declined to be identified because the decision hasn’t been announced. Zune software lets customers buy songs and movies, as well as pay a monthly fee to stream unlimited music.

Zune, introduced in 2006, never managed to break the iPod’s grip on the music-player industry and became the brunt of late- night talk-show jokes. Apple Inc. (AAPL)’s iPod led the market with 77 percent of unit sales last year, while the Zune failed to crack the top five, according to NPD Group Inc. By adding the Zune features to the Windows Phone software, Microsoft aims to gain ground in another challenging area -- mobile phones -- where it’s lost market share to Google Inc. (GOOG) and Apple.

Microsoft, based in Redmond, Washington, declined to comment on plans for the Zune.

“We have nothing to announce about another Zune device -- but most recently have introduced Zune HD to Canada via the Zune Originals store and remain committed to supporting our devices in North America,” the company said in an e-mailed statement. “We are thrilled by the consumer excitement for Zune across many new platforms, including Windows Phone 7 and Xbox 360. Our long-term strategy focuses on the strength of the entire Zune ecosystem across Microsoft platforms.”

Photographer: JB Reed/Bloomberg

A Microsoft Zune media player. Close

A Microsoft Zune media player.

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Photographer: JB Reed/Bloomberg

A Microsoft Zune media player.

Beating the iPod?

When Chief Executive Officer Steve Ballmer released the Zune more than four years ago, he predicted that Microsoft could one day overtake Apple.

“We can beat them, but it’s not going to be easy,” Ballmer said in a November 2006 interview.

At the time, Microsoft executive Robbie Bach, then president of the entertainment and devices business, said the company planned to invest “hundreds of millions” of dollars over the following three to five years to compete with the iPod. The company doesn’t detail spending on individual products.

In 2009, Microsoft split the Zune team into software and hardware groups, letting the software people focus more on other platforms, such as phones, the Xbox video-game console and personal computers. The company touted the Zune software as a key feature in its redesigned Windows mobile-phone operating system when it went on sale in October.

Zune HD

The Zune’s last completely new hardware model, the Zune HD, was released in 2009. A version that featured more storage went on sale a year later. Microsoft will continue to sell existing versions of the Zune, the person familiar with the matter said.

Microsoft shares rose 1 cent to $25.69 as of 4 p.m. New York time on the Nasdaq Stock Market. The stock has fallen 8 percent this year.

Talk-show hosts such as Craig Ferguson and Conan O’Brien ribbed the Zune for being an also-ran. Ferguson said the device was Microsoft Chairman Bill Gates’s bid to “loosen iPod’s stranglehold on the iPod market.”

“The Zune has all the features of the iPod except it’s not as good,” he said in 2006. “Plus it can only download recordings of Bill Gates singing.”

To contact the reporters on this story: Dina Bass in Seattle at dbass2@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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