Zune service to compete with online titan, iTunes

Microsoft is finally going after the TV download market with its Zune device and online network.

Company has added more than 800 episodes from congloms including NBC U, MTV Networks and Turner to its online store as part of a subscription push. Offerings pale next to the selection at the iTunes Store, but Chris Stephenson, general manager of global marketing for Zune, said the company wanted to “launch with what we’ve got” and build from there.

Timing is tied to a key selling period for MP3s and a desire to build a social network around those sales. Stephenson said Zune, which has struggled to gain a toehold against Apple’s far more popular portable device, will add smallscreen offerings from other networks and cablers as it inks deals over coming months. Movie downloads are further down the road.

“Clearly, we’re talking with everyone,” Stephenson said, “and we would like to have the broadest partnerships as possible.”

At this point, Microsoft’s Xbox Live service has a broader array of content, including skeins from CBS and Fox. But the Zune store does boast NBC skeins such as “The Office,” “Heroes” and “30 Rock,” which is more than Apple can say. Peacock yanked its skeins off iTunes in December over a pricing dispute.

JB Perrette, prexy of NBC Universal Digital Distribution, said the Peacock is eager to distribute its skeins on as many platforms as possible, as long as it can control pricing and protect intellectual property

“It’s really a question of ‘Why not?’ ” Perrette said, noting that NBC U distributes skeins through other digital services, including Amazon.

Whereas Apple insisted on a set wholesale price for all TV fare, the Zune deal allows NBC U to set its wholesale prices the way it does with DVD releases.

“We’re very open to variable pricing,” Stephenson said. “We haven’t gone out and advocated fixed pricing.”

At this point, TV fare will cost Zune users the same amount — 160 Microsoft Points per episode, or approximately $1.99 each. Different pricing configurations will likely come into play when there is more TV content on the site.

At this point, Perrette said, Zune will have access to episodes the day after they air on TV, much the way other digital retailers such as Amazon do. Zune also will launch with episodes of “South Park,” “The Hills” “SpongeBob SquarePants,” “Battlestar Galactica” and “The Ultimate Fighter.”

Stephenson said Zune was especially keen on inking deals with Comedy Central and MTV, given the demos their skeins attract. “South Park” and other animated fare is especially popular on its sister Xbox service.

However, it’s not clear how big a boost this influx will give Zune’s online store. The Zune portable has a much smaller installed base than iPod; last quarter Apple sold 10.6 million iPods, but Microsoft has only sold north of 2 million Zune devices total.

Stephenson says that the social networking component will ultimately drive greater coin through advertising than devices. In this way, he argues, the Zune is a much different biz than its much larger competitor.

“Apple’s online business is driving its hardware business,” Stephenson said, “and we’re at heart a software business.”

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