Microsoft Sets Zune Price at $250, Same as iPod

Microsoft Corp. (MSFT) has vowed to put considerable money and effort behind its bid to dethrone Apple Computer Inc.'s (AAPL) market-leading iPod, but it won't be using price as a weapon.

Microsoft announced Thursday that it will charge $249.99 for its new Zune music player, about the same as what Apple charges for an iPod with the same storage capacity.

Microsoft's portable music player and its companion online music service will debut on Nov. 14 in the United States, just ahead of the holiday gift-buying rush.

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The music service will let people buy songs individually for about 99 cents, the same amount Apple charges for songs from its popular iTunes Music Store.

For Zune, Microsoft will use the same payment system as its Xbox Live online video game service, which lets people without credit cards buy prepaid cards at some retail stores.

Microsoft also will offer a Zune Pass subscription service, which will let users listen to any of about 2 million songs for $14.99 per month.

RealNetworks Inc. (RNWK) charges the same monthly fee for its online music subscription service, Rhapsody to Go.

Scott Erickson, senior director of product management for Zune, said Microsoft is hoping that people will use the subscription service to seek out music they might not have known about, while also buying some songs outright.

Microsoft has said it plans a major promotional effort for Zune, but analysts say the world's largest software maker faces an uphill battle against the iPod and iTunes.

Erickson wouldn't provide financial specifics but said the operation won't make money immediately.

"In total we won't be making a profit this year, but we will of course work toward becoming a profitable business in the future," he said.

Other hardware manufacturers, including Creative Technology Ltd. (CREAF) and Samsung Electronics Co., already offer portable media players that support Microsoft's software, but they've had little success against Apple.

The Zune player, to be made by Toshiba Corp., will have 30 gigabytes of memory, enough to hold about 7,500 songs. It also will feature a 3-inch screen and a built-in FM tuner, and will come loaded with about 25 songs and other content.

An iPod with a 30-gigabyte hard drive and a 2.5-inch screen sells for $249. Apple also offers lower- and higher-priced versions.

Microsoft is hoping to differentiate itself from the iPod by including wireless technology to let people share some of their favorite songs, playlists or pictures with other Zune users who are close by.

The other users can then listen to the songs three times over three days before deciding whether to purchase the tune themselves.