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MS to spend big bucks and lose money pushing Zune

Re-uses Xbox business model

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Microsoft has pledged to spend "hundreds of millions" of dollars establishing its Zune music hardware and services combo while losing money on the package for the next few years. It'll take the company 3-5 years to make a significant impact to the market, it reckons.

So Robbie Bach, head of Microsoft's Entertainment and Devices division, told financial analysts at the software giant's annual Wall Street conference. Bach, of course, also looks after Microsoft's Xbox efforts, and so he's used to the long game: take a short- to medium-term hit promoting the platform in the hope of riches to come.

'Long' is the word - Bach told analysts the Xbox business won't go into the black at least until 30 June 2007 - end of Microsoft's FY2007.

Zune shares other aspects of the Xbox approach. Bach confirmed the device and the service that feeds it music will not be part of Microsoft's Plays For Sure initiative. But lest PFS partners feel Microsoft is biting the hand that feeds it, he was quick to stress PFS' PC centricity. Zune will sit alongside PFS in the same way Xbox sits alongside the PC: related but different horses for different courses.

That said, he admitted Zune will "work with the same [PFS] interfaces", suggesting a Windows Media Player connection, which is a very PC element. Still, all the expectations are that Zune will be able to access Microsoft's answer to the iTunes Music Store directly.

If the device - or one of them; Microsoft is planning a series of hardware products, Bach indicated - can indeed work with Wi-Fi networks, as some observers have speculated, it's not hard to see Microsoft building the kind of branded network that Nintendo and - starting today - Sony is too. Take your Zune to a 'Zune Spot' Wi-Fi hotspot and download content for free and without the need for a PC.

If Microsoft is indeed planning such a move, we wonder if it's a trial run for a handheld Xbox. Certainly, Bach's division has been claimed to be working on such a machine, but it's difficult to say whether mobile Xbox rumours indicate the existence of such a device or are merely misinterpreted evidence of Zune. ®

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