Zune revenue falls 54% in fourth quarter

Microsoft remains committed to brand, spokesman says

DENVER -- It seems that Microsoft's Zune just can't catch a break. Despite a holiday ad blitz and introduction of new services -- including a feature that lets subscribers keep 10 free songs a week -- revenue for the Zune division fell 54% in the fourth quarter from the previous year.

That's a drop of about $100 million, according to a recent Microsoft regulatory filing. However, a company spokesman said any rumors pointing to the demise of the brand or the service are patently false. The company remains firmly behind the Zune music strategy.

While Microsoft won't break down exactly how it is divvying up the 5,000 layoffs it announced last week, some in the Zune group are expected to be affected, but not more than any other division. That the Zune division remains intact after such a massive workforce reduction indicates the company's dedication to the strategy remains intact.

However, expect some changes in the year ahead. Microsoft has always been more of a software/services company than a hardware one, despite the anomaly of the Xbox. Company executives, including CEO Steve Ballmer, said to look for an expansion of the Zune service into other Microsoft-run products like the Windows Mobile technology for mobile phones, and at some point into the Xbox Live Marketplace.