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Saturday, November 11, 2006

Weekend Edition: Microsoft Zune Finds An Apple iPod Killer

Count on Microsoft to be as clever as the devil. The new Zune business model will turn Apple on its ear. Microsoft will give Universal Music a cut of the sales price of each Zune sold. Apple only gives content providers a piece of the downloaded music or video.

One of the reasons that model is attractive to music companies is that much of the content on most iPods comes from ripped CDs. In that case, the music publisher gets nothing. Microsoft has found a way to make sure each music firm is assured revenue from the Zune.

The ball now goes to Apple's court. It does have over 70% of the share in portable multimedia devices, but music companies are somewhat ambivalent about the device. It gives them huge distribution, but Apple keeps most of the revenue pie.

Apple will probably see no need to counter Microsoft's move immediately, but if the music industry warms to it, MSFT may find itself in the role of preferred provider to entertainment companies that think its revenue model is more attractive.

And, that could be tough for Apple.

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