Zune's New Targets: Apple, Sirius, and Nintendo

Don't bury the Zune. It's not dead yet.

A CNET report confirms that a new version of Microsoft's (Nasdaq: MSFT  ) nascent portable media player is coming.

In an interview with Chris Stephenson, Zune's general manager of global marketing, news broke that the new device will feature an HD Radio receiver, the ability to play high-def video on televisions, Wi-Fi cybersurfing via a customized version of Internet Explorer, and an organic light-emitting diode (OLED) touchscreen. Microsoft will also be rebranding its Xbox Live digital video service under the Zune label, making it more than likely that the new Zune player will come with a a premium video store.

"This device is created to go head to head with the iPod touch," Stephenson told CNET.

That's big talk, considering the Zune's market share has thus far hovered somewhere around the iPod's ankles.

The new flash-memory-based Zune HD has a similar size and design to Apple's iPod touch. It obviously has a long way to go to match Apple's success, but the Zune HD seems poised to challenge many existing devices.

A satellite radio slayer?
HD Radio can't compete with the wide range of free Internet radio broadcasts, or the premium content offered by Sirius XM Radio (Nasdaq: SIRI  ) on portable receivers. However, terrestrial radio stations that offer HD Radio can triple the number of broadcasts on a single frequency. They typically use the additional channels to offer narrow music genres with minimal advertising, making the techonology a poor man's free alternative to satellite radio. And since the Zune HD is an actual HD Radio receiver, your access to music won't vanish once you leave Wi-Fi range, like Web-based radio does.

An iPod annihilator?
Apple's (Nasdaq: AAPL  ) iPod touch -- and maybe even Apple TV -- shouldn't ignore the new Zune's spec sheet. Tying its maligned Zune brand with the successful Xbox franchise should help diminish any negative Zune connotations.

A DS destroyer?
Unlike Nintendo (OTC BB: NTDOY.PK) and Sony (NYSE: SNE  ) , Microsoft is the only console maker without a handheld gaming device. Is that about to change? Stephenson was mum when asked, but his silence seems odd compared to his relative chattiness regarding rumors of a Zune Phone. If Stephenson's keeping silent about speculative plans to compete with the Nintendo DS or Sony PSP in advance of this year's E3 gaming expo, this thing will play games. At the very least, Microsoft can't take on the iPod touch without a developer-friendly app store, offering far more than the handful of casual games presently playable on a Zune.

Zune has a lot of ground to make up since its uninspiring debut three years ago. When even Microsoft devotees like Xbox hub GameStop (NYSE: GME  ) stop stocking the Zune, you know that the brand is on the ropes.

Microsoft has little choice but to swing. It's comforting, at least, to see it swing hard.

Other Zune-rific leads:

Microsoft is a Motley Fool Inside Value pick. Apple, GameStop, and Nintendo are Motley Fool Stock Advisor picks. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz can't recall the last time he saw a Zune out in the wild. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (7) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 27, 2009, at 2:44 PM, Inept wrote:

    It's a sexy-looking device. The screen resolution is a pretty big letdown in my opinion, but the industrial design is striking nonetheless. Official site with pics:

    http://www.zune.net/en-us/mp3players/zunehd/default.htm

  • Report this Comment On May 27, 2009, at 3:18 PM, marv08 wrote:

    Well, so far there is not a single multi-touch capable application written for Windows CE (besides whatever MS will ship with the device), MS music and video sales are abysmal and there is no ecosystem worth talking about. This will remain a steep uphill battle for many years to come. The significant questions is: will they be able to make this "me too" exercise profitable before shareholders have enough of it.

  • Report this Comment On May 27, 2009, at 4:05 PM, siriradio wrote:

    SOMETHING IS WRONG WITH THIS STOCK SIRI

    ...AT 3:59 EVERYDAY THE LAST SALE IS VERY SUSPICIOUS....

    LOOK AT THE TRADING ACTIVITY FOR THE DAY AND AVG PRICE..LOOK AT HOW IT ALWAYS CLOSES.

    tHEY CONTINUE TO CLOSE AT 1 TICK BEFORE THE BELL SALE UP ...THIS FORCES THE OPEN TO BE DOWN...NOT JUST TODAY...EVERYDAY...NOT JUST THIS MONTH ..EVERY MONTH...BEEN WATCHING THIS STRANGE ACTIVITY AND WONDERING IF ANYONE CAN EXPLAIN THIS ?

  • Report this Comment On May 27, 2009, at 7:05 PM, rfaramir wrote:

    "Tying its maligned Zune brand with the successful Xbox franchise should help diminish any negative Zune connotations."

    OR

    It will doom the endeavor to the unloved Zune's fate.

  • Report this Comment On May 27, 2009, at 8:53 PM, TMFBent wrote:

    Nice article, Rick.

    As a Zune owner since the legendary brown t|_|rd, I'm not going to trade up to this one, though the HD radio is a nice add. The spec sheet looks good, but the real appeal of the zune vs. iPod is:

    1) Better interface on zune.

    2) Better software with great music-discovery options (mixview) (ITunes is really way behind almost every other internet music service in its design and features...)

    3) monthly subscription plan that's $15, shareable among 5 devices, and throws in 10 keepers (including DRM-free MP3s) with the deal.

    Touch and multitouch is all the rage, and Microsoft has been at it a lot longer than apple (Surface, tablet OSes) so they ought to be able to get it right on a handheld, though the clutzy Windows Mobile doesn't inspire confidence at all.

    But the thing about a good old fashion click wheel on the ipod or the pad on the zune is that you can actually use it to fast forward or adjust the volume without looking at it, like when it's in your jacket or running tunes into your car stereo.

    If all you want is music, I think you're better off with the bigger Zune (or iPod) than any of the touchscreens.

    One weakness any Zune touchscreen will have is that Apple seems to have cut a deal with AT&T wifi that iPod touch can use the wifi hotspots for free. I was in an airport this weekend and someone next to me in line had free access through her iPod to the airport wifi network. Trying to get it on my laptop meant having to pay up. Relationships like that will matter for this, and since Apple's got them, it's got a big lead.

    I wonder about the gaming thing. I don't really see it. MS has lots of experience catering to developers, something Mac finally learned from in opening up the iPhone, but with so few Zunes in circulation, there won't be much incentive for developers to write for it, and lacking dedicated controls, I have a hard time seeing it as a real competitor to a dedicated game device like Nintendo's or Sony's.

    Sj

  • Report this Comment On May 28, 2009, at 11:23 AM, mccoyb wrote:

    siriradio!! I have noticed the same thing and been wondering how someone is doing that. It gets a person a little excited and by 30 minutes after the closing bell the bottom drops our again? Makes no since to me. Unless someone in the company knows how to squeeze in and out at the right time to get money in and let it sit with no gains then take a little out when they like?

  • Report this Comment On May 28, 2009, at 9:50 PM, siriradio wrote:

    And again today the stock jumped up to close at .32

    Look at any day graph chart for this stocks movement and you can see they are pushing the stock up on the last tick of the day and ultimately driving the opening price to show it down for the opening bell.

    Not sure how they do it ...but My guess as to why they are doing it is to keep the price down and sentiment down...so far it seems to be working .

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