Zune joins the fray as iPod gains the platform



Apple and Microsoft traded punches in a new fight over digital music - but it was rivals who felt the pain.

The gloves are off... almost. After months of waiting, the first real volleys have been fired in the long-anticipated digital music war between Apple(NASDAQ: AAPL)and Microsoft(NASDAQ: MSFT).

It kicked off with Apple, as Steve Jobs unveiled revisions to the iPod range and added some extra features. He finally lifted the curtain on the heavily-trailed movie download service, offering American customers downloaded Disney-produced films such as Pirates of the Caribbean: Dead Man's Chest and Cars.And there has been, unusually, a preview of a set-top box system, temporarily called iTV, which will stream media files sent wirelessly from a Mac or PC to a TV set. Such a gizmo is not a new idea - but where others flopped, industry watchers say Apple could have the market muscle to push forward where predecessors have feared (or failed) to tread.

Microsoft, meanwhile decided it also needed a splash of colour - and, somewhat bizarrely, plumped for brown. It waited until the day after Apple's announcements to lift the lid on Zune, its own attempt to break the music market open. Zune, which will reach US shops by Christmas but still has no confirmed price, exposed itself as a revised version of Toshiba's Gigabeat player with a bigger screen and smoother looks.But it's what's on the inside that counts - and there are a couple of features Steve Ballmer will hope can lift Zune above the crowd. It offers wireless connectivity, though shared files (only of purchased songs, not those ripped from your own CDs) with a very limited lifespan - three days or three plays, whichever is first. Some say Microsoft's restrictions are likely to seriously limit any real impact of the feature, despite indications that young users are increasingly interested in sharing music via their mobile phones.

One blogger summed it up succinctly. "I've often wished I could somehow share full-length sample tracks of select songs," wrote Pauldwaite. "Thank goodness Microsoft is here to help at last."

The other difference inside Zune could be the crucial one, however. In a remarkable change of direction, it ditches Microsoft's long-held faith in the digital rights management (DRM) system that it developed and has promoted for previous Windows-only players. Despite the heavy promotion given to the PlaysForSure format, used by services such as Napster, the Zune for sure won't play tracks protected by that DRM. Instead, it will ape Apple's closed system, hooking into a specific download store for purchases while offering support for unprotected Windows Media Audio (WMA), MP3 and AAC files - the latter meaning that iPod owners can find a new home for any music ripped in Apple's default format, though not any tracks direct from the iTunes Store.

The news was a punch in the gut to many companies supporting PlaysForSure, and even J Allard, the Microsoft vice president who helped mastermind the rise of Xbox and now oversees Zune, struggled to explain the U-turn.

"PlaysForSure is still a program we're going to invest in, we still have a lot of partners there, and for a class of consumers who want to have a handcrafted media experience and maximise their choice, we have an answer," he told the Engadget blog (tinyurl.com/ksgqd). "There's another class of consumers that just want digital media, and they just want to be able to go to one store and have it all just plain, dead simple, and don't want to know what a codec is."

Vendors who had lined up behind PlaysForSure believing it was that simple solution - among them Napster, MTV's Urge, Creative and Samsung - may have been surprised. While Microsoft's decision to pitch into the digital music hardware market - a move as guaranteed to irritate its numerous partners as if it began making PCs - will not have been taken lightly, this battle plan has clearly been coming together for some time. When a parody video about Microsoft packaging the iPod (tinyurl.com/ks8m8) circulated online this year, it drew laughs; now it is obvious the film (leaked from inside the company) underlined a new strategy to fight fire with fire. Ballmer confirmed the development program in an interview with Fortune magazine in March.

"The Zune announcement led to domino-like reactions and repercussions in the industry. On Monday, Real Networks announced a partnership between its Rhapsody service and device maker SanDisk, to try to create another end-to-end solution and include preloaded content on players.Rumours indicate other interested parties as diverse as Nokia, T-Mobile and Sony are poised to follow suit."

Mark Mulligan, an analyst with Jupiter Media, says Redmond's decisions are based on long-term fear that Jobs will turn the iPod and its ecology of add-ons into a much wider platform. "Microsoft doesn't want Apple to develop a strong position in the media player business, and that includes PC," he says. "At a strategic level, they're probably not that concerned at making revenue from music... but the problem is that Apple is beginning to squeeze into Microsoft's digital home strategy."

And while Microsoft closes ranks, some of the features added to the new iPods indicate expansion, albeit limited, of Apple's vision. Aside from iTV's obvious charge into the living room, the addition of games for the iPod, on sale via the iTunes Store in the same way as audio or video content, marks a watershed. Games are software; if non-Apple companies write software for the iPod, it begins to resemble a platform. As Microsoft understands, platforms can emerge where business happens, and vice-versa; it's a virtuous circle.

With the battle focused heavily on music, the danger is that this could be the start of a very painful transition. Despite rapid growth in recent years, digital music accounts for just 6% of music industry revenues, and a scrap between two bloody-minded and well-funded rivals could spell trouble for everybody else caught up in the fight.

"There isn't an infinite market in digital music," Mulligan warns. "But either way, we're a long, long way from the digital home: we're not talking about the Jetsons... this is still the Flintstones."