A Bloomberg report claims that Microsoft has ceased developing new Zune hardware because of "tepid demand," citing a single person familiar with the decision. Actually, that's a bit conservative from a timing perspective: Microsoft dismantled the Zune team and stopped developing new Zune hardware after the release of the Zune HD in 2009. And it has been slowly phasing out the Zune brand ever since.
Bloomberg's report doesn't uncover any new details of this plan, but instead reiterates what I'd previously reported: Microsoft will continue pushing its Zune software on Windows Phone and on Windows-based PCs, and will continue offering Zune-based services such as the Zune Marketplace and the Zune Pass subscription service. Sources have previously told me that these services and software offerings would be rebranded over time as Microsoft drops the Zune moniker in favor of a more popular brand. This is still up in the air, but it's likely that the Zune offerings will be reoffered under the Xbox and/or Windows/Windows Live umbrellas.
The Zune got off to a rocky (and cocky) start in 2006 as an ego project of J Allard, who was then the "Chief Experience Officer" for the Entertainment and Devices division at Microsoft—the division that's also responsible for the Xbox 360. I criticized the company at the time for oozing a "faux coolness" in a product that, frankly, wasn't meeting the iPod challenge out of the gate. (That Microsoft is making this same mistake today with Windows Phone is probably not coincidental.)
Microsoft steadily improved Zune over the years, though the hardware devices never really offered anything truly innovative until the excellent Zune HD appeared in 2009. By that point, however, it was pretty clear that something had changed: Microsoft was suddenly silent on its previously stated plans to take Zune international, and it seemed like the Zune HD would be an orphan device.
And that's exactly what happened: Behind the scenes, Microsoft was working to dismantle the Zune team, cease development on new Zune hardware, and develop Windows Phone, which would include Zune HD user-interface ideas as well as its playback and media-management software. A major overhaul of the Zune PC software, planned for 2010, was scrapped so that Microsoft could rush out and focus on Windows Phone. It's unclear whether that software will ever see the light of day.
Just recently, Mary Jo Foley reported that Microsoft has started hiring for a new service under the Ventura Media Service brand, building "experiences revolving around music\video discovery and consumption." That sounds an awful lot like a next-generation Zune offering to me, and to Foley.
For its part, Microsoft says that it is "committed to providing a great music and video experience" across its various platforms. It's becoming increasingly clear that those plans do not include the Zune brand, or the Zune devices.