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Edition: U.S. Article Comments (0) Save Email Print Reprints Most Popular Most Shared EU condemns identity theft involved in Dubai killing 9:39am EST Bad economies in states to worsen: governors 20 Feb 2010 Bad news for record lottery "winner" 16 Feb 2010 Haiti death toll could reach 300,000: Preval | Video 10:21am EST U.S. pinpoints code writer behind Google attack: report 10:28am EST Bad economies in states to worsen: governors 20 Feb 2010 Obama has insurers in sight as he sets health plan 8:51am EST EU condemns identity theft involved in Dubai killing 9:39am EST Haiti death toll could reach 300,000: Preval | Video 10:21am EST Cleveland deemed most miserable city in USA 18 Feb 2010 SPECIAL REPORT Inside Apple's fortress of secrets Inside a walled city in South China and amid intense security, employees are provided with dormitories, canteens, recreation facilities, even banks, post offices and bakeries. The goal? Keep Apple's secrets. Full Article Apple's iPad e-book store to use DRM: report Mobile operators unite to fight Apple app store Microsoft phone system hits reset on digital music Antony Bruno Mon Feb 22, 2010 8:29am EST Microsoft's Vice-President for Windows Phone Program Management Joe Belfiore gestures during the ''Windows phone 7'' presentation at the Mobile World Congress in Barcelona February 15, 2010. Credit: Reuters/Albert Gea DENVER (Billboard) - It's been more than six years since then-Microsoft CEO Bill Gates admitted that Apple caught the company "flat-footed" in the digital music market and directed his team to make up for lost ground, according to recently surfaced internal e-mails. Technology | Music | Media To date, Microsoft's effort to address the digital music market has largely focused on its Zune player and Zune Pass subscription service, which have won favorable reviews but few customers. But with the recent unveiling of its Windows Phone 7 Series operating system at the Mobile World Congress conference in Barcelona, Microsoft hopes to reboot its struggling digital music strategy. Even the well-received Zune HD device, introduced last fall, hasn't been enough to convince music fans to convert to the Zune Pass. The company says it has sold only 3.8 million players since 2006, and NPD Group estimated in November that it has a 2 percent share of the U.S. portable media player market, compared with 70 percent for Apple's iPod. So Microsoft has made it a priority to expand the Zune service to other platforms. In November, it added the Zune's video service to its Xbox Live network, consisting of more than 20 million worldwide users of the Xbox 360 gaming console. Since then, Zune communications director Jose Pinero says the number of daily HD video downloads and streams has doubled. Now, Microsoft plans to use its Windows Phone 7 platform to bring Zune to mobile customers. "Anybody who gets a Windows Phone 7 Series phone is going to get a Zune within that device," Pinero says. INTERNATIONAL PUSH The most immediate impact this has is to expand the Zune service to countries outside of the United States and Canada, which are the only markets where the Zune is sold. While Microsoft will continue to sell the original Zune player in the States, Pinero says it doesn't plan to expand it to other countries, instead relying on the mobile phone software to bring the Zune service to those markets. For this strategy to work, Microsoft will have to turn around its equally struggling mobile phone business. According to technology research and consulting firm Gartner, Windows Mobile handsets rank fourth in worldwide smart-phone sales, at 7.9 percent, as of third-quarter 2009, down from 11 percent a year earlier and behind Nokia, BlackBerry parent Research in Motion and Apple. But those rankings remain fluid, as analysts expect global smart-phone sales to double in the next three years. "There's certainly opportunity for Microsoft and other players in this market to grab share in the smart-phone space," says Sue Kevorkian, an analyst at tech market research firm IDC. Early reviews of Windows Phone 7 have been positive, with its simple interface and clean design winning high marks. But handsets featuring the new technology aren't expected to hit the market until the 2010 holiday season. By that time, Apple is expected to release an updated iPhone. Zune will need to do more than piggyback on an innovative new mobile phone platform to generate the kind of momentum needed to elevate itself from the status of also-ran. It must compete with rival mobile music services sure to be created for handsets using Windows Phone 7, and the company hasn't yet detailed how developers will be able to integrate Zune functionality into their applications, if at all. Answers to those questions are expected in March at Microsoft's annual Web developer conference, Mix. Zune will also need to increase its footprint to encompass more than mobile technology. That includes adding the music service to the Xbox Live network, as well as taking a larger stake of the subscription market and expanding that lackluster model beyond its current state. Forrester Research analyst Sonal Gandhi estimates the entire U.S. music subscription market totals just 2.5 million users, and that includes not only Zune, Rhapsody, Napster and MOG, but also eMusic and those paying for the premium tiers of such streaming services as Pandora and Live365. While Microsoft's recent moves may lend an important boost to Zune, the company will have to look beyond the subscription model if it is to have much of an impact on overall digital music revenue. Technology Music Media Add a Comment More from Reuters Obama offers new plan to revive healthcare push WASHINGTON (Reuters) - President Barack Obama tried to rejuvenate his stalled healthcare overhaul on Monday with a revised plan designed to make coverage more affordable and bolster federal authority to regulate insurance premium hikes. Schlumberger sees gas drill growth in Smith deal NATO Afghanistan airstrike kills 27 civilians Stocks edge lower as Fed outlook, Greece debt weighs Lowe's sees sales rising in 2010; shares up Toyota memo raises stakes for chief's U.S. hearings | Video » More Top News Analysis: Greece's three-way poker game Greece is trying to make the most of a weak hand in a three-way poker game with its EU partners and the financial markets. Full Article Euro's future in question: Soros EU exec: No euro zone aid plan Global Markets Vancouver 2010: "Miller Time" at men's hockey U.S. goalkeeper Ryan Miller stopped Canada in a heartbreaking 5-3 loss for the hockey-crazed host nation. Full Article | Related Story Gold just child's play for Bode Miller Slideshow: Highlights from Vancouver Grieving Rochette puts on brave face 2010 Winter Olympics © Copyright 2010 Thomson Reuters Editorial Editions: Africa Arabic Argentina Brazil Canada China France Germany India Italy Japan Latin America Mexico Russia Spain United Kingdom United States Reuters Contact Us Advertise With Us Help Journalism Handbook Archive Site Index Video Index Analyst Research Mobile Newsletters RSS Podcasts Widgets Your View Labs Thomson Reuters Copyright Disclaimer Privacy Professional Products Professional Products Support Financial Products About Thomson Reuters Careers Online Products Acquisitions Monthly Buyouts.com Buyouts Europe: Buyouts Conferences: Venture Capital Journal EVCJ International Financing Review International Securitisation Report Project Finance International PEhub.com PE Week Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. 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