Zune comes to Xbox Live in UK. Plus: ZuneHD to hit US

UPDATE: This story has been updated to alter some technical inaccuracies. The service coming to Xbox Live is Zune Video NOT Zune Marketplace. Music is not part of the Xbox Live offering.

Zune, Microsoft's 'end-to-end music and entertainment service' is coming to Xbox Live. Later today the mega-corp will officially announce its plans, which - although intriguing - are substantially less radical than the Zune mobile phone and/or Zune portable games player imagined by internet rumour-mongers over the weekend.

Here's the deal.

Up until now, the portable media player and its online iTunes Store equivalent, Zune Marketplace, have only been available in the US. From early Autumn, however, a revised service, Zune Video, will be available on Xbox Live in the US, UK, France, Italy, Germany, Ireland and Spain (with more countries coming aboard later). Xbox 360 owners in these territories will be able to go online and access video content and play it via their console. A variety of access options will be available, including instant streaming, download to rent and download to own. However, no Zune portable music players will be launched outside of the US - at least not yet. This is about the online service only.

The finer details have not yet been announced, but the basics were revealed to me by Chris Stephenson, Microsoft's General Manager of Consumer Marketing for TV, Video and Music Business. As with the current Zune set-up in the States, it looks like Xbox Live owners will be offered a subscription service, allowing them to download content from the Zune Video catalogue. Microsoft has yet to reveal its content partners, or a subscription rate for UK users, but further details will be revealed at next week's E3 event in Los Angeles.

"Xbox as a platform is broadening its audience, growing beyond games into living room entertainment," said Stephenson in a telephone interview yesterday afternoon. "That's what's driven the prioritisation of an enhanced Zune video service to Xbox… It's about changing the way people think about entertainment."

It also sounds like Zune Video will be closely integrated with Xbox Live's community features. The current PC version of the service features lots of social sharing and discovery functionality and this will filter into the Live version, although again, the details are scant. Stephenson would only offer this: "The idea of having your LiveID sort of bringing together all of your experiences, all of your friends, and being able to create linear links between your content, is going to be really important."

Zune, then, is essentially becoming the backbone of Microsoft's "Three Screens and a Cloud" philosophy of digital content availability. As Steve Ballmer, Robbie Bach and Ray Ozzie have been pointing out at events like CES and CTIA Wireless recently, it's all going to be about having your content available to you whether you're using a PC, TV or mobile device. Stephenson refers to, "a ubiquitous entertainment experience."

In practical terms, it's a huge increase in the Zune user base. Microsoft reckons it has shifted three million Zune players in the US, but if the Marketplace service is opened up to Xbox Live, they're bringing in a potential new audience of some 17 million customers. Although Xbox Live currently offers video-on-demand functionality, different territories offer different content and the catalogue - at least in the UK - is not exactly gigantic.

While I had him on the phone, I asked Stephenson if the Zune library would be made accessible within games, allowing users to create custom soundtracks. He said, "We recognise there are lots of different ways to integrate music into the platform and we're looking at all the different opportunities. Again, we don't have any announcements to make around that, but there are are definitely great opportunities." I also asked if Microsoft had any plans to integrate a TV Tuner and PVR features to round out the entertainment feature-set. "We don't have any announcements right now," was his carefully worded reply...

Meanwhile, Microsoft will also be releasing a HD version of the Zune media player in the States this Autumn (and is clearly keeping an open mind on the possibility of a wider, if not global, launch further down the line). The new model will, as expected, feature a 16:9 widescreen OLED touch display, built-in HD Radio receiver, full-screen internet browser optimised for multi-touch and Wi-Fi functionality. There will also be HD video out capabilities: as the press release explains, "the HD compatible output lets Zune HD customers playback video from the device through a premium HDMI A/V docking station direct to an HDTV in 720p."

I asked Stephenson if Microsoft will be announcing an enhanced range of compatible games for Zune HD (the existing media players offer a bunch of casual titles). He told me, "Well, gaming on the handheld device is definitely a big opportunity for us, we have the DNA in our business. We're not talking specifically about the gaming aspect of our hardware platform at the moment, but it's definitely something that over time, we want to step up, and we'll have more announcements around that in the future."

Of course, the big question for Microsoft is whether the device can compete against the hugely well-established iPod Touch. Stephenson is predictably bullish.

"Yes. We've got a tremendous device – this is a fantastic piece of hardware and absolutely it's going right up against iPod Touch; it's hyper competitive against that product. I think in many ways, we look at our consumers and what's really motivated them, and the radio functionality is something that people really talk about – the HD radio receiver, with radio tagging, with track tagging, is a great differentiator for us. It's going to be an interesting and competitive year for us in the market – we think we've got a great product; we are going to compete..."