Microsoft sets $250 price for Zune

Microsoft Corp. said Thursday its new Zune music player will be sold at a price matching Apple Computer Inc.'s market-leading iPod and, as a result, lose money this holiday season.

Microsoft's 30-gigabyte Zune will retail for $249.99 — 99 cents higher than the iPod with the same amount of storage — when it goes on sale Nov. 14.  Songs available for download at the Zune Marketplace service will cost about 99 cents a song, on par with prices at Apple's iTunes, Microsoft said.

The world's largest software maker faces an uphill climb in trying to topple the market-dominating iPod after conceding a five-year head start to Apple's media player.

Microsoft said it needed to put a comparable price on Zune, even if it meant that the company will suffer a loss from the device's sales this holiday season.

"We had to look at what was in the market and offer a competitive price," said Scott Erickson, Microsoft's senior director of product marketing for Zune. "We're not going to be profitable this holiday but the Zune project is a multiyear strategy."

Redmond, Washington-based Microsoft has said it plans to invest hundreds of millions of dollars to develop and market the Zune, and acknowledged the investment may take years to bear fruit.  (MSNBC is a Microsoft - NBC joint venture.)

The music player is the first step in creating a new brand of portable devices, according to company officials, who also said a Zune phone is in the works.

The Zune, a rectangular media player with a round click wheel, is similar in appearance to the iPod but slightly bulkier and has a larger 3-inch screen.

Unlike the iPod, it comes with an FM radio tuner and wireless connectivity to allow users to beam photos and songs to one another.

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Microsoft hired Japanese electronics maker Toshiba Corp. to manufacture the Zune.

Microsoft also announced it will sell a music subscription pass for $14.99 a month, allowing users to listen to any of the songs on Zune Marketplace.  It pledges to offer 2 million-plus songs at launch.  After the pass expires, users will not be able to access those songs.

For consumers looking to own a song, the Zune Marketplace will sell tracks for 79 Microsoft points. A user can buy 80 Microsoft points for $1 and points will also be redeemable at its online video game store, Xbox Live Marketplace.

Microsoft said it will initially sell only music — and no video -- at the Zune Marketplace. The company said it was negotiating with major record companies and labels.

Each Zune device will come preloaded with an array of songs, music video, images and short films, Microsoft said.