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published: 08-May-08
territories: USA
categories: Content deal

> Microsoft adds TV shows to Zune Marketplace


Microsoft has made TV shows available on a download-to-own basis from the "Zune Marketplace" online store in the US. The platform now offers around 800 TV episodes, including the latest episodes from NBC's Heroes, The Office and 30 Rock as well as South Park, Comedy Standup and Chappelle's Show from Comedy Central. Other partners include MTV, Starz Media and Turner Broadcasting. Episodes are priced at 160 Microsoft Points (approximately $1.99). Shows can only be viewed on a computer or Zune portable media player; other Windows-media portable video devices cannot recognize video from the store given that files are wrapped in a Zune-specific Windows DRM system. Additionally, features on the Zune and accompanying PC software have been improved via a software update.

TV shows expand the selection of music videos available since October 2007 with the launch of the 2nd generation Zune. Other content available through the portal includes music tracks (some DRM-free), albums and podcasts.

Microsoft has reported it is open to a flexible pricing and bundling of episodes - both these retail strategies are expected to be introduced on the service in H2 2008. Furthermore, Microsoft has agreed with NBCU to work on an anti-piracy filter, or "cop", for its device to detect and deny playback of illegal content by checking content tags. Importantly, however, it has not committed to implementing such a system in the Zune. Sandisk is also said to be co-operating with the filter.

Our take...
The TV shows are competitively priced – in line with NBCU shows when they were previously offered by the Zune Marketplace's strongest rival in the US, the iTunes Store (iTS). However, while the availability of these premium shows could drive usage from some Zune owners searching for legally downloaded premium TV to watch on the go, experience suggests that the availability of music or video content by itself does not drive significant sales of hardware; other factors, most notably, attractiveness of device, ease-of-use and features are also important to bear in mind. Indeed, in terms of hardware sales – the source of the lion's share of Zune-related revenues, as opposed to content – Microsoft still lags behind Apple. Microsoft has sold just over 2m of its portable device since launching in November 2006; this compares to Apple which sold 10.6m iPods during 1Q 2008. Screen Digest estimates that Zune players accounted for about 3 per cent of the US portable media player market in 2007 while the iPod captured just under 70 percent.

NBCU's deal with Microsoft continues the former's effort to undermine Apple's power to negotiate pricing and retail strategy terms by syndicating content through rival online video services. Wholesale pricing and bundling were two key aspects over which Apple and NBCU disagreed, leading to the removal of NBCU shows from US iTS in December 2007. In May 2008, however, Apple outside the US seems to have partially conceded in selling a number of NBCU shows on UK iTS at different prices.

Beyond content, another central issue separating NBCU and Apple was the former's demand for tightening Apple's content protection methods - including the Fairplay DRM system and the development of a filtering system for the iPod. NBCU is keen on filtering technology integrated into the hardware as an additional measure to try to stem illegal downloads of shows and protect content revenues by preventing playback at the end user device. However, the appearance of any content filtering system in portable devices raises concerns as to whether playback of content legally copied from CD and DVD discs could be affected - hence potentially encroaching on consumers' fair usage rights in "backing up" media, although this is dependent on legislation in each territory. Another issue could be that homemade files legally transferred to the device but with metadata similar to Zune Marketplace video files are mistaken and rejected. Moreover, willing users have until now generally found ways to work around any tag identification software. If such an identification system were introduced by Microsoft, any potential bugs, particularly in early stages, could dissuade consumers from buying the Zune device. While Microsoft has committed to exploring the technology, Apple has until now made no reports of backing such software.


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