Digital Noise: Music and Tech

Is this leaked picture the forthcoming ZuneHD?

(Credit: WMPoweruser)

I was vacationing last week, so I missed my chance to comment on the Zune HD rumors. Microsoft had already told me that it is planning one more iteration of the Zune hardware, and given the iPhone's success, it wouldn't surprise me if it has a touch screen (though I was hoping for something more cutting-edge, like a projector).

Now it appears that Microsoft's getting ready to launch Zune for mobile phones around the same time.

According to AdWeek, Microsoft is currently staging a run-off between three advertising agencies--its longstanding advertising partner, McCann Erickson, Crispin Porter + Bogusky (which is overseeing the Windows brand campaign that's making lots of news), and JWT (which recently took over Microsoft's People Ready campaign)--for a product referred to as "Pink."

The article says only that Pink is a mobile service. But according to ZDNet's Mary Jo Foley and other sources, Pink is a code name for the Zune software and services running on mobile phones.

Microsoft is due to pick an agency for the campaign by the end of May, which could mean we'll start seeing ads for Zune on mobile phones by the middle of the summer.

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In the absence of any concrete news from Microsoft about Zune, the same rumors crop up every few months. We've known for some time that Microsoft is porting the Zune software and marketplace to some sort of living room device--it's called the Xbox 360. (I doubt they'll do a separate piece of hardware like Apple TV, especially given the recent rash of cost-cutting around the company.) And as far as the latest crop of Zune-phone rumors, I expected Microsoft to announce Zune for Windows Mobile back in February at the Mobile World Congress show, and was surprised when it didn't happen.

Supposedly a screenshot of the Zune interface planned for Windows Mobile 7.

(Credit: WMPoweruser via CNET Asia)

Now I understand why it's taking so long. According to this unsourced rumor at WMPoweruser, Microsoft is planning to allow mobile operators to be involved in the process of selling downloads. In other words, when you download a song from the Zune Marketplace to your Windows Mobile phone over 3G, your carrier will set the price and handle the billing. Adding a third party--the carriers--to your development process introduces delay.

I believe the rumor for a couple reasons. The last time I talked to the Windows Mobile team, they emphasized that they consider carriers as a major customer, alongside end-users and handset makers. This is unlike Apple, which built the iPhone primarily to appeal to end-users, then told carriers they'd have to agree with Apple's terms to sell it--in other words, all downloads go through iTunes. Carriers want to keep control of the customer billing relationship, and they want to dictate prices for content downloads, especially ringtones. So I could see Microsoft capitulating here.

Second, Microsoft acquired a company called Musiwave in 2007, and has posted job ads for developers to work for Musiwave to help power the Zune Marketplace. Musiwave was a provider of back-end platforms for carriers such as Orange and Vodafone. That kind of expertise could be helpful in transitioning the Zune Marketplace to a model in which some transactions are handled by carriers instead of Microsoft.

Personally, I like Apple's all-in-one model, and if Microsoft's not careful, allowing the carriers in could create a usability nightmare. What if, for instance, Wi-Fi and PC downloads are handled by Microsoft, but 3G downloads are handled by carriers, leading to two bills and different prices for the same content? Epic fail. But I could see some advantages as well. For instance, today carriers subsidize the price of many phones (including, of course, the iPhone). What if Microsoft could convince them to subsidize the cost of a Zune Pass (Microsoft's all-you-can-hear subscription plan), or even build it into the monthly data plan fee? The result would be similar to Nokia's Comes With Music phones--a phone that offers you unlimited over-the-air music for a year or two.

Whatever the case may be, we probably won't see any Zune-Windows Mobile integration until Windows Mobile 7, which won't be out until 2010.

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As one of my colleagues put it the other day, Microsoft killed the rumors that it's building a Zune phone, but it didn't drive a silver stake through their heart and bury them at a crossroads at midnight. In other words, until Microsoft makes some kind of phone-related announcement, misinformed analysts and news outlets will continue to speculate that there's going to be a Microsoft-built Zune phone, and Microsoft spokespeople will continue going on the record with vehement denials.

Danger built the Sidekick, but Microsoft was mostly interested in the company for its services expertise.

(Credit: CNET Networks)

This is getting silly. I've been saying since February that the most likely course of action for Microsoft to take is to build a Zune client for Windows Mobile. Not a Zune phone.

Why? Because Microsoft--unlike Apple, and Research in Motion, and Nokia--isn't a hardware company at its core. Microsoft only builds hardware when it can't get a partner to do so (Xbox--who'd take the per-console loss?), or when it feels that partner products aren't getting enough traction and thereby letting a competitor build a threat to Windows. It built Zune because the iPod was slaughtering all the Windows Media-based players, revitalizing Apple and getting consumers to take another look at the Mac. (Sure enough, Apple's now the fastest-growing computer manufactuer in the U.S. and has taken a couple points of market share away from Windows-based PCs.) Microsoft briefly built wireless home routers because it felt partners weren't making them easy enough to set up on Windows, especially compared with Apple's Airport. And way back when, the company originally built keyboards and mice to promote Windows, and found that it was a profitable little business.

Windows Mobile may have stalled in the water while the iPhone and RIM phones have continued to take market share, but to Microsoft, 11% global market share and 16 million units a year isn't unsuccessful enough to kill the platform and change strategy completely.

So let's assume the rumors are based in fact and that Microsoft is going to make some sort of phone-related announcements at CES. (I haven't been briefed on any such announcements, so this is all speculation on my part.) Befitting Microsoft's new self-image as a software plus services company, I would expect the company to announce new and refreshed software and services for mobile phones. Specifically, a Zune client that connects to the Zune Marketplace, plus a revamp of the historically lame MSN/Windows Live services for mobile.

Recall that Danger--the company Microsoft acquired last February--has some expertise in services. The company's Danger Service automatically backs up e-mail and photos in an online repository, pushes e-mails out to the device, offers remote storage for games and other apps, and synchronizes everything between the mobile device and a PC. In other words, everything Microsoft's been saying under the "software plus services" rubric for the last couple years.

I imagine something like this Danger Service renamed under Windows Live for Mobile brand, with more connections to relatively new services like Windows Live Photos, and perhaps new client pieces as well. Music will be part of the picture, but this is more about mobile than Zune.

That said, Microsoft might not announce any of this at CES, but might wait for a more mobile-specific conference.

Microsoft is trying to push Zune sales along with a price cut, as CNET's Ina Fried already reported Tuesday, and Donald Bell has the scoop on the firmware update that will deliver bug fixes, three new games, and head-to-head Texas Hold 'Em via the Zune's Wi-Fi transceiver.

But the most interesting part of the announcement was the advertising campaign. Not the advertisements themselves, although I'll be interested to see what the oddballs at Crispin Porter + Bogusky (who did the Gates-Seinfeld and "I'm a PC" ads) come up with. The fascinating part is that the campaign will focus on convincing users to download the free Zune software. Microsoft will still be doing other forms of advertising for the Zune players, but this TV campaign is all about promoting a product from which Microsoft earns no direct revenue.

The new Zune advertising campaign focuses on the brand and the software, not the devices.

(Credit: Microsoft)

Why? Because music players were never the endgame. The company has always said that Zune is meant to be a broader entertainment brand that will find its way into other products. As I've posted before, a Zune interface for Windows Mobile 7 is a near-certainty, but I also would expect the Zune Marketplace to find its way into Xbox Live in short order--in fact, the new Xbox Live Experience gives Microsoft a much smoother way to introduce new features than the old "blades." I could also see Microsoft adding a Zune Marketplace page to the Media Center interface in Windows 7.

Of course, this (once again) raises the question of the future of the Windows Media Player. So far, Microsoft is committed to releasing a new version of the Media Player with Windows 7, in part for corporate customers who would never allow consumer software like Zune anywhere near their employees' PCs, but who still need media playback for corporate videos--training, presentations, and the like. But as long as Microsoft has three teams working on three digital media interfaces for Windows--the Zune software, the Media Player, and the Media Center software--there's room for consolidation, and my guess is that the Media Player will eventually get no further updates.

According to a report in the Hollywood Reporter by way of Reuters, Microsoft is talking to talent agencies and production studios in Hollywood in hopes of licensing some exclusive video content for the Zune. This isn't a first for Microsoft: the company has exclusive Internet-only shows on MSN Video through its MSN Originals program, and just last month the company announced a plan to offer original short movies through the Xbox Live service.

Are these rumors true? I have no idea. Will they help the Zune? Probably not. Exclusive video makes sense for a game console because it's already connected to a TV. But video on a tiny screen doesn't have the same appeal. I can see how an occasional sports highlight or funny video could lighten a commute--assuming you live in New York or some other large city with useful and abundant public transit--but it's not something that's going to convince users to buy a Zune instead of an iPod. Instead, I think Microsoft's best hope is to repurpose the Zune brand into the consumer mobile phone space to present a credible alternative to the iPhone. I'm hearing rumors from lots of sources that the company is well on its way down this path--there might even be a Zune client for Windows Mobile phones in time for the 2008 holiday season.

A quick follow-up to my earlier post about the lack of Zune mentions in Microsoft's presentations to financial analysts today. Mobile market follower James Kendrick blogs that Microsoft is holding its first serious internal meetings to coordinate the development of a Zune phone.

A completely unofficial mockup of a possible "Zune Phone," put together by a fan in the ZuneScene forums.

(Credit: ZuneScene)

I don't have any inside knowledge about these meetings, but I don't doubt it for a second. Kendrick's posting, which is based on an unsourced rumor, suggests that any such phone will be based on Windows Mobile 7, will have a touch screen, and will feature connections to Windows Live services.

My guess: there will be plenty of Windows Mobile 7 phones in lots of form factors, and all will feature built-in connections to Microsoft's online services--that's the best chance they have to step ahead of the iPhone, whose MobileMe service is drawing flak even from big Apple fans. At the same time, the company will probably create hardware reference designs for one or two phones specifically designed for consumers, and meant to compete against the iPhone. These phones will connect to the Zune PC client software and Zune Marketplace, but otherwise will bear little resemblance to Microsoft's MP3 player. Touch screens are a must, but Microsoft will probably contract the manufacturing out--just like Danger did with its Sidekicks. (Microsoft acquired Danger earlier this year.) Likely timing will be 2009--I don't think they can get it out this year, unless this project's a lot farther along than Microsoft's letting on.

How long have we been reading these Zune Phone rumors? Microsoft still hasn't officially announced any plans to build an iPhone, but yesterday's corporate reorganization clearly points that way.

This mockup of a smartphone UI appeared in a June 2006 Microsoft patent filing.

(Credit: Microsoft patent application)

Microsoft has reason to be worried. After about five years of plugging away with Windows Mobile, Microsoft's managed to create a reasonable competitor to Research in Motion for e-mail-enabled phones. But that's about it. In contrast, Apple launched the iPhone in June 2007 in the U.S. and by Q4, it was already the number-two provider of smart phone (or "converged device") OSs in the U.S., with 28 percent market share--ahead of Microsoft's 21 percent and behind RIM's 41 percent. Worldwide, despite an October European launch and a smaller global footprint than its competitors, Apple managed to reach 7 percent share worldwide, just behind RIM's 11 percent and Microsoft's 12 percent , although all of these folks are bit players compared with Symbian's 65 percent share. (All numbers courtesy of a February 2008 report by Canalys.)

Microsoft's acquisition of Danger has already been the subject of much speculation on CNET and elsewhere, so I won't spend too much time pondering how long it will be until Microsoft kills the Sidekick and its Java-based OS (as long as it takes to build a Windows-based version) or guessing about the acquisition price ($500 million sounds high, but possible given the premiums Microsoft has been offering lately).

The interesting part is buried in yesterday's press release announcing the latest Microsoft reorg: the company has appointed Roz Ho to lead the Danger integration. Ho has spent the last few months in an unspecified "special projects" role under J Allard, Mr. Zune himself. But before that, Ho was the longtime leader of Microsoft's Mac Business Unit, which means there's probably no Microsoft executive more familiar with Apple. Connect the dots and they spell iPhone.

So how will Microsoft go about it? My guess is they'll whip out some sort of Zune client software for the current iteration of Windows Mobile as a stopgap measure, while simultaneously building a completely new device that combines a consumer-oriented UI, mobile services, and an associated hardware reference design. They will probably brand it as a Microsoft product (like Zune and Xbox), instead of merely licensing the software (Windows Mobile) or software+reference design (the short-lived Portable Media Centers). Sidekick's manufacturing partners, Sharp and Motorola, might be involved. Timeline: probably not until 2009, although the Windows Mobile Zune client could come out this year.

I've always preferred prognostication to nostalgia, so rather than replay the best of 2007, I'll use these late December doldrums to make 10 predictions for the coming year. Some editors will warn you that this kind of list is suicide--it's too easy for everybody to look back a year later and see where you were wrong--but it hasn't hurt Cringely, so here goes. In no particular order.

DRM will die. The trendline is clear--Apple's been selling DRM-free tunes on iTunes since May, Amazon's DRM-free MP3 store has three of the four majors signed up, and eMusic has become the second-most-popular music download service (after iTunes) thanks in part to its longstanding insistence on selling DRM-free MP3s. A year from now, DRM will be irrelevant and hardly used in digital music. All four labels will agree sell their songs without DRM on Amazon. Nearly every iTunes audio (but not video) file will be DRM-free, and Apple will get rid of the "Plus" designation. Some music subscription services like Rhapsody and Microsoft's Zune Pass might retain DRM so that users can't cancel their subscriptions and keep the songs they've downloaded, but they'll be the last holdouts--and some of them might try eMusic's approach of limiting monthly downloads rather than limiting compatibility and usage with DRM.

3G iPhone and iTunes. A 3G iPhone is a fairly safe prediction, given that AT&T CEO Randall Stephenson already let it slip, but I think there'll still be a small surprise embedded in the announcement: iTunes 3G, a service that will come with the phone and give users anytime-anywhere downloads of any audio content in the iTunes Music Store. Impulse buying will go through the roof.

No Zune phone. Microsoft won't release an iPhone competitor this year--at least not one with hardware designed by Microsoft. The company might release some sort of software update or client application that allows Windows Mobile users to play songs from the Zune Marketplace and transfer them from the Zune PC client software to their phones, but even that probably won't happen until 2009. And it'll sink like a lead balloon against v3 of the iPhone, at which point Microsoft will bend to the inevitable and start building its own phone from scratch.

GarageBand will win a Grammy. Not the program itself, but somebody will make a record using Apple's Garage Band--which comes included with every Macintosh sold--as their primary recording and mixing tool, and that record will win a Grammy award. There's already been a critically acclaimed movie, Tarnation, made exclusively with iMovie, so now it's time for all those bedroom musicians to get into the do-it-yourself spotlight.

Mashups will go mainstream. Have mashups already jumped the shark? The controversy about The Grey Album, in which DJ Danger Mouse combined lyrics from Jay-Z's Black Album and The Beatles' untitled white album, is almost four years old. There was a burst of experimentation from big-time artists like David Bowie and Beck around the same time, but not much since 2005. Nonetheless, I predict that artists and even some labels will begin re-releasing their back catalogs as standalone instrumental and vocal tracks, and fans will recombine like crazy using programs like Garage Band and Splice. At least one mashup will get significant radio play, with the complete approval of the original artists. (Although you might say that Puff Daddy accomplished this 10 years ago.) They might even be incorporated into video games like Rock Band--imagine the challenge of having to sing Abba while the rest of the band plays Judas Priest. By the end of 2008, putting a mere song on your social-networking profile will seem hopelessly old-fashioned.

The campaign--don't call it "marketing"--that preceded Nine Inch Nails' Year Zero release will become the gold standard for building audience engagement for tours, albums, or new artists.

Year Zero will become the precedent. On the plane trip home from visiting family over Christmas, I read Eric Davis's analysis of Led Zeppelin's fourth album, part of the 33 1/3 book series. While a lot of it seemed like a stretch--as is the case with any highly intellectualized deconstruction of rock music--it did remind me of a certain sensation created by certain artists and albums, a sense that the listener is more than a mere consumer, but is in fact an active member in a secret club that only other members fully understand, a sort of musical Masonic society. Think of that Zeppelin album, the Grateful Dead, the Residents, or Secret Chiefs 3. In 2007, Trent Reznor, working with 42 Entertainment, took this kind of mystical clubbishness and updated it for the digital era. USB drives with leaked tracks from the upcoming Year Zero record were surreptitiously placed in bathroom stalls at concert venues. Phone numbers with frightening secret messages were encoded in bursts of static or out-of-phase audio signals. Cell phones were distributed to fans who figured out some of the clues; a phone call placed to those phones summoned them to a secret concert. In 2008, we'll see more of these kinds of musical events that use digital technology to break down the wall between audience and artist.

The world's best offline record store will go online. There's nothing else like Amoeba Records. Its three locations in Berkeley, San Francisco, and Los Angeles offer unsurpassed selection--including cellophane-packaged vinyl I've never seen anywhere else--and seem to be curated by music fans with amazing depth and breadth of knowledge. In 2007, Amoeba took its first tentative steps into digital distribution, releasing exclusive recordings from Gram Parsons and Brandi Shearer in both MP3 and CD formats. In 2008, I predict Amoeba will finally go online in a huge way, offering an unsurpassed quantity of MP3 downloads from every imaginable source: major labels (like Amazon MP3 and the other high-profile stores), independent labels (like eMusic), and do-it-yourselfers (like CDBaby). Look for the nascent Amoeba label to offer distribution on terms never before seen in the recording industry--more of a non-exclusive commission model like CD Baby than a typical all-inclusive marketing-recording-publishing-distribution deal like most labels have favored--and for several high-profile artists who've recently quit their labels to sign on.

The loudness wars will end. It's been repeated so many times, it's become a cliche: today's recordings are mastered too loud, eliminating dynamic range and making it hard to listen to a complete album. In 2008, artists and producers will finally begin to demand a return to proper mastering, and radio stations and record execs will be in no position to contradict them.

The concert business will follow the recorded music business down. It's a bad time to be a big rock concert promoter like Live Nation. According to a recent story in Pollstar, the concert business actually declined in 2007, despite high-profile reunion tours by The Police and Van Halen and David Lee Roth--two acts with so much internal strife that nobody expected to see them on stage again. I say the 15 percent drop in ticket revenues from 2006 to 2007 will be followed by the same or greater drop next year. Music fans are fed up with exorbitant ticket prices, false scarcity, and quasi-legal scalpers, and there are only so many more nostalgia acts to trot out. Where are the young bands that can sell out 20,000-seat arenas for the next 5, 10, 20 years? (And before you call me out on the Arctic Monkeys, let me just counter with Oasis. Huge in the U.K., briefly popular in the U.S., and irrelevant to all but the die-hardest of fans 10 years later.) In other words, the concert business is about to suffer from the main problem that's hurting the recording industry--not MP3s, not piracy, but lack of interest and investment in artists with long-term (as opposed to instant) commercial potential.

Led Zeppelin will play again, but not tour. Speaking of nostalgia, it won't be 1973, but the reunited Led Zeppelin will play a handful of shows in the U.S., focusing on a multi-night stand at New York's Madison Square Garden timed around Robert Plant's 60th birthday on August 20.

Microsoft's mobile phone strategy and its digital media strategy often seem to be in different worlds. For mobile phones, the company has focused primarily on the Windows Mobile OS, a few mobile applications (Outlook being the most useful one), and--more recently--online services such as Live Search that can be used on many mobile platforms, including (gasp) the BlackBerry (the No. 1 competitor that Windows Mobile has in its sights).

For digital media, the company first pursued its partner-driven approach, promoting the Windows Media Platform for both online stores and devices, and then went with the end-to-end approach of Zune. At times, there's been overlap--for example, Verizon uses the Windows Mobile platform to power its VCast service, and there is a version of the Windows Media Player for Windows Mobile. (Does anybody use it? I have no idea.) But there hasn't been any big coordinated effort to push digital media on the Windows Mobile platform, and certainly nothing resembling the all-in-one experience of the iPhone.

On Monday, Microsoft announced its intent to acquire Musiwave, a provider of digital music services--downloads, ringtones, and so on--to phone carriers, mostly in Europe, although Canadian provider Telus is also a customer. The official release name-drops several Microsoft brands that could make use of Musiwave's services, including MSN, Windows Live, Windows Mobile and--yes--Zune.

So is this going to drive the long-rumored Zune Phone? I doubt it. It looks like this possible acquisition was driven by the Windows Mobile group, which still believes that the best long-term business model for Microsoft is to sell platform software and services to as many carriers and handset makers who will buy it. Zune and Xbox aside, Microsoft still doesn't have the DNA of a hardware company--it would prefer to sell huge volumes of broad-market, horizontal software. The margins are higher, the cross-pollination with its other pure-software businesses is more effective (if Outlook Mobile worked only on Microsoft-built phones, how would that help the company sell more e-mail servers to corporations?), and there's no dominant handset maker that threatens another core Microsoft business (unlike Xbox, which responded to the threat that network-connected game consoles would cut into consumer PC sales, and Zune, which responds to the iPod halo effect on Mac sales).

Two possibilities seem more likely to me than a Microsoft-built Zune phone. One, Microsoft could offer Musiwave as a turnkey service for operators to add mobile music services quickly and easily--the carriers get to retain control of the billing relationship with the consumer, which they're loath to give up, and Microsoft sells infrastructure software (Windows Server, for example) as facilitating technology.

Or, Microsoft could in fact be building a Zune client for Windows Mobile, or for various mobile platforms (as they did with Live Search). In that case, Musiwave might provide some sort of necessary technology to make the Zune Marketplace available via third-party carriers. Although I can't imagine the carriers being too happy about that, it's better than losing customers to the iPhone.