D&H Offers Zune As iPod Alternative

Zune itself won't generate much profit for digital integrators and independent retailers. But the Harrisburg, Pa.-based distributor is carrying dozens of related accessories by such vendors as Belkin, Griffin, Klipsch, Monster and Spek. Many of those products carry over 20 points in margin, said Michael Schwab, D&H's vice president of purchasing. Zune will also offer integrators who can't become Apple resellers a chance to sell a high-end player as an alternative to iPod.

"There's really nothing out there now that touches iPod. Apple keeps its channel so limited that you don't have access to it unless you're a big-volume player," said Fred Whitten, a buyer with FutureTronics, a high-end electronics and PC-related retailer with stores in Dallas and Orlando, whose customers have been inquiring about Zune. "To have a strong competitive product gives us a leg up, especially if there are a lot of accessories available. There's a huge market for those."

Schwab also sees Zune as a strong play for digital integrators and independent retailers because is can be integrated as part of Microsoft's overall digital home platform. That platform includes entertainment PCs running Vista, with all Media Center functionality built into the new release, and the XBox 360 gaming console, which serves as a media extender to wirelessly stream content from a PC onto a display. Entertainment PCs, particularly when they're built on a media-enhanced platform such as Intel's Viiv, will offer users easier access to downloadable content, which can be stored on a Zune.

"I see this as more than just a stand-alone device," Schwab said. "It's a conduit within the digital home platform that Microsoft is trying to drive into the market. You'll be able to use this as an IP-enabled mobile device, pulling content off the Web through your complete network."

Tighter integration with the network could also become possible with the aggressive content licensing deals Microsoft inked this week, including a huge play with CBS, MTV, Paramount Pictures, Turner Broadcasting, Warner Brothers and others to offer over 1,000 hours of movies and TV programs, many of them in high definition, for download through XBox 360s.

On top of that, Microsoft announced on Thursday it will pay a percentage — expected to be $1 for each $250 device — of each Zune sale to the Universal Music Group in exchange for licensing its music for Microsoft's new digital music service. That is a far more aggressive licensing strategy than Apple has with its music and video content providers. It could help Microsoft gain more exclusive programming deals and overcome some digital rights management issues, making it easier for end users to stream content across networks and share them across devices, Schwab said. Zune has a built-in Wi-Fi transmitter that allows other Zune users to wirelessly share files, a feature iPod does not have.

"That's where Microsoft can take the legs off Apple. Microsoft's advantage now is that it can strike different deals than Apple. I think Microsoft will play nicer with content providers, which might give them more flexibility in building their model," Schwab said. "I think Microsoft has as good a chance as any company at successfully selling a portable media player as part of the overall networking platform."