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Reuters 02:00 AM Jul, 21, 2006

SEATTLE -- Microsoft said on 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`s iPod player.

Microsoft confirmed the plans for an entertainment device and software in a statement after touting those products to record companies in recent months.

The world`s largest software maker faces an uphill climb in closing the gap on Apple`s iPod media player and iTunes Music Store, the runaway leaders in their respective areas.

The iPod holds more than half of the digital media player market, according to research company NPD, while iTunes accounts for over 70 percent of U.S. digital music sales.

``Creating a lifestyle device, Microsoft is clearly going to face a battle here,`` said Michael Gartenberg, research director at JupiterResearch. ``It`s going to be hard for them to create the same level of cachet that Apple has with the iPod.``

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.

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 Xbox gaming system. His involvement suggests that gaming might be part of the media player.

Microsoft said it did not have a spokesperson available for comment.