Zune 2.0: Playing Tomorrow's Tune?

It won't catch the iPod soon, but it may be a harbinger of the subscription era

One thing you can say for Microsoft (MSFT): It doesn't give up without a fight. Its first music player, called the Zune, failed to even ding Apple's (AAPL) market-beating iPod, so Microsoft has come right back with version 2.0. And while I think iPod and iTunes will hang on to their leadership for now, an all-you-can-eat music subscription plan gives the Zune some real advantages.

It comes in three models: an 80-gigabyte hard drive version for $250, and 4GB and 8GB flash memory units for $150 and $200. The original 30GB Zune remains available, deeply discounted below $100.

A "Zune Pad"

The new models are much better looking than the homely original. The 80GB version's 3.2-inch display is more than 60% bigger than the iPod Classic's, while the two flash models' screens are about three-quarters the size of a new nano's. You can order the Zune in one of 20 designs or with a text inscription of up to five lines laser-etched into the metal back.

The new navigation control is a nice innovation; the "Zune pad" works as both a standard five-way control and as a pad that's sensitive to the flick of a finger. While playing music, for example, side-to-side motion moves back or forward through your playlist, and up-and-down motion adjusts the volume.

Wi-Fi has also been enhanced, though its impact on battery life still makes it a dubious proposition. Zunes can now sync wirelessly with a Windows computer to transfer music, podcasts, video, or photos. As with version 1.0, you can send a song over Wi-Fi from one Zune to another that's nearby. The recipient is still limited to three plays, but the songs no longer expire after three days.

Microsoft put a lot of work into the software, with mixed results. The menus and other material that appear on the display are clean and easy to use, though there is nothing as attractive as iPod's Cover Flow to flip through your albums. If you're one of the relatively few buyers of the original Zune, you can upgrade to the new software.

A Big Plus: Subscription Support

The desktop software is more problematic. It looks very good, much prettier than what Microsoft derides as iTunes' "spreadsheet" appearance. But you pay a price of reduced functionality for that minimalist look. For example, editing the data that describe your music is much more complicated than on iTunes or even on the much-maligned Windows Media Player.

The Zune Marketplace offers fewer tracks than the iTunes Store, and there are still no movies or TV shows available. You can download video to a Zune, but it is a do-it-yourself project. And the store retains a silly system that makes you pay with prepurchased "Microsoft Points" worth 0.8¢ each.

Zune's ace in the hole may be its support for subscription music. For $14.95 a month, the Zune Pass gives you access to most of the 3 million tracks in the Zune Marketplace. (Some publishers and artists only allow purchases.)

Follow the Market

Subscription music has been slow to catch on. But with sales of CDs and of copy-protected downloads both crumbling, it may represent the only viable long-term business model for the music industry—despite Apple's stubborn opposition. As it happens, the Zune Pass is too expensive and too restrictive. The music can be played only on Zunes, Xbox 360s, and Windows PCs. Even devices compatible with the older Microsoft PlaysforSure protection, such as the Sonos music system (BusinessWeek, 11/26/07) are left in the cold.

I believe the winning formula for subscriptions will ultimately be a charge of $5 to $10 a month that lets you play all of your music anywhere, on any device. That's going to take a lot of negotiation among the music companies and their online distributors such as RealNetworks (RNWK), Microsoft, and Apple. But even Steve Jobs' opposition to subscriptions would likely disappear the minute he saw the market moving that way. Zune is still far from the ultimate music system, but it may lead the way to the new subscription era in music.

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