Late last week, Microsoft finally admitted that it is, indeed, working on a so-called iPod killer, code-named Zune, which the company will bring to market in time for the holiday season. The Zune MP3 player will be accompanied by a new online music service that Zune users can access wirelessly via the player's Wi-Fi connection.

"The idea is you can access your entertainment from anywhere," Chris Stephenson, Microsoft's general manager of marketing for the MSN Entertainment Business, told "Billboard" magazine last week. Stephenson said that Microsoft will launch Zune with a campaign that will rival the $500 million that Microsoft spent launching Xbox 360 last year.

Microsoft's Entertainment and Devices division is developing Zune, and Xbox alums Robbie Bach and J Allard are driving it. Microsoft will deliver Zune separately from the Windows Digital Media team, and Zune won't interoperate with the company's PlaysForSure initiative. Instead, Microsoft is developing Zune as a completely autonomous solution that won't rely on partners, unlike Microsoft's previous Windows and digital media products and initiatives.

Though the first Zune products the company will release are a portable MP3 player and accompanying music service, Microsoft says that Zune is much more than that. The company is developing an entire family of entertainment-based hardware and software products under the Zune code name, and it will release other Zune products in 2007. Microsoft is reportedly working on a portable video game machine modeled after the Xbox as well. It's unclear at this time whether that device is part of the Zune initiative.

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