Microsoft Cuts Zune Price by $50

Microsoft Corp. (MSFT) slashed $50 from the price of its Zune digital media player Wednesday, just before Apple Inc. (AAPL) announced an iPhone price cut and additions to its market-leading iPod line.

The 30-gigabyte Zune now costs $199, the Redmond, Wash.-based software maker said on its Zune Insider blog.

"It's part of the normal product life cycle, something we've had on the books for months," wrote Cesar Menendez, a Microsoft employee and Zune Insider blogger.

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Zune comes in a handful of colors, but only one hard drive size, while Apple's music players come in a variety of shapes and sizes and account for the vast majority of digital music player sales in the U.S.

Matt Rosoff, an analyst at the independent research group Directions on Microsoft, noted that Microsoft is expected to announce new Zune models and features for this holiday season. Until then, it's not necessarily fair to compare the Zune with the iPod.

"I think they're doing OK considering that they are only competing against one iPod," Rosoff said. If Microsoft adds to the Zune line, "then it's really apples to apples."

At a special media event near downtown San Francisco, Apple CEO Steve Jobs announced that the 8-gigabyte iPhone, which combines the features of an iPod and a smart phone, will now cost $399 instead of $599. The 4-gigabyte model has been discontinued.

Jobs also showed off an iPhone-like iPod Touch, which can be used to surf the Web and wirelessly buy music from iTunes, and he said the tiny iPod Nano will now have a bigger screen and the ability to play movies.

The iPod Touch will go for $299 for an 8-gigabyte model, $399 for 16 gigabytes.

[Apple also moved the goalposts on the traditional hard drive-based iPod, which it now calls the iPod Classic. The 30-gigabyte model, which had gone head-to-head with the Zune, was discontinued; the 80-gigabyte model moved into the $249 price slot, and a new version with a whopping 160 gigabytes of storage space took the higher $349 price point.]

After Apple changed the game with the iPhone, Microsoft watchers have been parsing executives' comments for hints of a Zune phone for the holidays, but Rosoff said he thought that was unlikely.

The company is "pretty devoted to the idea of providing software" to cell phone makers, he said.