"A Zune phone is definitely part of the future of this brand," Chris Stephenson, general manager of global marketing for Zune, told reporters at a news conference. He did not give specific details.

"We're definitely talking to the studios about video. We recognize that it's an important part of this product going forward," said Stephenson.

Microsoft's Zune Marketplace store will have a library of "millions of songs" in "many popular formats" (no word on what) will also, naturally, accept Microsoft Points so you can purchase without the use of a credit card. The Zune software will be able to import both iTunes and Windows Media Player files, but, of course, you won't be able to play those files that you already plunked a few dollars for from the iTunes Store (at least not yet). The Zune player itself comes with songs pre-loaded from various labels including DTS, EMI Music's Astralwerks Records, Virgin Records and others, but once you're bored of the standard stuff, you can wirelessly share songs, playlists or pictures between you and your friend's Zune.

The first product we'll introduce this holiday will be a connected one -- that's why we put in WiFi in every device, because we think those connected experiences are really going to signal what the future of the music industry looks like, and the future of television and film and everything else. And the community wants to play a big part in it. So while we're starting now and sharing between devices where you can share songs with your friends (3 plays for 3 days), and sort of get the recommendations of your trusted circle of friends and experience and discover new music. You guys know all too well 802.11 devices there are out there. Think about what else we can connect to. Think about all the other scenarios we could do, whether location-based, etc. The device itself is intended to be a future-proof platform that's part of this connected entertainment world where entertainment will become more personal, more interactive, and more engaged with community.

As expected, Microsoft is busting out the Zune today, and we've got the rundown. Not a lot of surprises in the specs department, but they've confirmed the basics we've known for a while, like WiFi, 30GB of HDD, built-in FM, a 3-inch screen and the basic music, pictures and video playback. They also finally let slip the screen res -- an unsurprising QVGA -- and some better news on the codec front: the Zune supports h.264, MP3, AAC and WMA. As for ballyhoo, wireless Zune-to-Zune sharing is where the real action is at, and it works pretty much like we've been hearing: you can share a full-length track with a friend, and they've got three times to listen to it over a three day period, after which they can flag the song for purchase on the Zune Marketplace -- unless they're an unlimited "Zune Pass" subscriber, of course.

Microsoft hopes the Zune, which will also be able to play videos and includes a radio, will eat into the iPod's more than 75% share of the digital music player market in the US.

The Washington-based software giant said it will also introduce a competitor to Apple's iTunes music library and online store called Zune Marketplace.

This online store will allow users to choose to buy songs individually, or alternatively sign up to a subscription service to download a certain number of songs for a flat fee.

Microsoft said Friday that Japanese electronics maker Toshiba will manufacture its upcoming "Zune" portable media player, the software giant's answer to Apple's market-leading iPod.

A company spokeswoman confirmed that a filing made by Toshiba for a portable audio player to the Federal Communications Commission is for Zune, due out later this year.

The filing reveals that the device will come with a 3-inch liquid crystal display screen, a 30-gigabyte hard-disk drive and has wireless connectivity.

Microsoft Corp. outlined on Thursday its strategy for taking on Apple's iPod and iTunes juggernauts with its own digital-media devices and service -- saying that the "Zune" project will be long and expensive but ultimately worthwhile.

"It is something that is going to take time," acknowledged Robbie Bach, president of Microsoft's Entertainment & Devices Division, in his first public comments since the company confirmed the project's existence last week.

Bach predicted development and marketing costs of hundreds of millions of dollars, and said it's not as if the company will be able to conquer the market in six months. "This is something that's going to be a three-, four-, five-year investment," he said.

The company's Zune project is an effort to make inroads against another rival, Apple. Bach said the first Zune device will be released in the U.S. this fall. He said the products will be designed to complement Microsoft's Media Center PC software, Xbox 360, Xbox Live, MSN and Windows Live initiatives.

Microsoft has previously supplied media software and left the devices to hardware makers. But Bach said the company considered it necessary to take a more integrated approach -- handling the hardware, software and services with Zune.

Microsoft Corp. said Friday it plans to release a new music and entertainment player and accompanying software under the "Zune" brand this year, in a belated attempt to challenge the dominance of Apple Computer Inc.'s iPod player.

Music industry sources told Reuters earlier this month that Microsoft disclosed plans to be in the market before Christmas with a media player that will allow users to download videos and music wirelessly.

It will also try to replicate Apple's simple approach to providing an integrated, seamless ecosystem for digital media, seen as the key to its success with iPod/iTunes, the sources said.

"The iPod is going to be a tough nut to crack, but you probably could have said the same thing with Sony and the PlayStation and it has done a good job positioning the Xbox," said Toan Tran, analyst at Morningstar.

Microsoft sources said Robbie Bach, president of Microsoft's entertainment and devices division, is working with J Allard, vice president of its Xbox team, on the digital media player/software project.

Allard's involvement is seen as significant because he is one of the few executives at Microsoft with experience in launching a consumer electronic device from scratch with the X-Box gaming system. His involvement suggests that gaming might be part of the media player.

• Zune is the name of the project, the brand, and the device.
• The first Zune device will be launched this year, with more devices to come in 2007.
• The Zune brand encompasses not only the device, but the software that will drive it, as well as a music, movie, and media service the Zune device family will use for acquiring, sharing, and discovery of said media. Music will be the first angle of service that is launched, "connected entertainment" being the ultimate goal.
• The Zune media service will heavily leverage community aspects and recommendation; emphasis is being placed on using Zune to discover new artists, media, etc.
• The Zune media device will be drive-based, and have WiFi.
• The Zune brand is intended to be an entirely vertically integrated end-to-end solution, not unlike the iPod / iTunes / iTunes Music Store triumvirate.