Microsoft is not a company of fools. It knew the Zune was going to get pummeled by the iPod – and it knows that the Zune HD will never knock the iPod Touch or iPhone off of their throne. But it also knows there are a lot of people more interested in a good personal media player than an all-in-one device – and for them, Microsoft has hit the sweet spot.

While the Zune HD isn’t quite a home run for the company, it’s a solid triple – and has quickly become the strongest competitor on the market to Apple’s PMP empire. Priced fairly at $220 for the 16GB model and $290 for the 32GB one, the device is stylish, ultra-light and ultra-powerful. It boasts a solid battery life. And, come mid-December, it could be a tough item to find on store shelves.

One of the Zune HD’s major attractions is its 3.3-inch OLED screen, which offers a sharper picture than anything you’ll find on the iPhone. Like many competitive devices, the screen is touch sensitive and offers a 16:9 (widescreen) ratio. Ironically, videos shown on the Zune HD itself do not appear in high definition.

Most people won’t realize it, though. Video on the player is crisp and clear. As with  a high-end TV, though, it’s best watched in a darkened room. The Zune HD’s highly reflective screen makes outdoor viewing (and some indoor viewing) a bit challenging – and sometimes impossible.

To get true HD from the Zune HD, you’ll need a $90 dock (sold separately). With this, users can output 720p video from the device to their HDTV. The functionality is a big selling point for the Zune device – and it’s a feature that really shines. Videos look spectacular – and the interface works surprisingly well on the big screen, despite its shortcomings on the player itself.

The player’s interface is one of the Zune HD’s more notable stumbles. It’s minimalist, but perhaps a bit too much so. Figuring out how to navigate among choices isn’t as intuitive as some competitors, including Apple.

Despite my digital home here at Variety, I’m a pretty entertainment-agnostic guy. I like movies. I like music. I like video games. Heck, I even like books – both the old fashioned kind and in electronic form.

I’m not a big fan of fan alienation, though – which the music industry is up to once again.

After waging war with their fan base for years over digital music (and offering no viable legal ways for fans to use their MP3 players until iTunes came around), the industry is finding new ways to look ridiculous.

Music royalty groups ASCAP and BMI are reportedly trying to strong-arm online music stores into paying royalties for the short previews that people listen to as they mull whether to buy a song.

I’ll say that again, since I had to read it two or three times to believe it myself. The music industry wants users to (ultimately) pay for 30-second song samples.

That’s akin to tacking a surcharge on to movie tickets to watch the trailers. Or asking broadcast networks to pay a royalty for music used during a commercial to promote the CD itself.

What’s particularly sad is this inane cash-grab is wrapped up with a legitimate grievance – that composers receive no royalties for music used in movies and TV shows that are downloaded.

Guys, if you want people to pay attention to real problems, you need to stop making a fuss about non-existent ones. It’s hard to get any public backing when your customer base hates you. 

The Zune HD, Microsoft’s redesign of its portable music player, has finally hit store shelves, right on the heels of Apple’s new line of iPods.

The features are pretty well known by this point:

• Built-in HD Radio receiver
• HD video output capabilities (720p)
• OLED touch screen, allowing you to flip through music, movies and other content
• Wi-fi
• Internet browser optimized for multi-touch

There’s also the addition of an advisor AI called Smart DJ, which will make suggestions for others songs or artists you might enjoy. Imagine if Pandora and Apple’s “Genius” had a love child.

Simply enter an artist’s name and it will build a playlist around that artist – pulling suggestions not only from your own music, but from the 6 million tracks in the Zune marketplace. (If you’re not a Zune Pass subscriber, you can still see the songs it suggests, in case you’d like to buy them a la carte.)

While the Grateful Dead didn’t mind recordings being made of their concerts, most musicians are a little less enthralled with the idea.

Not Rob Thomas. Whether it’s at his solo shows or his gigs with Matchbox 20, fans can pick up a copy of the live show they just attended on the way out the door – and do with them whatever they’d like.

The concerts, which are sold on Flash Micro SD wristbands, are just one of the digital tools Thomas is using to promote himself and his music these days, making him one of the industry leaders of digital marketing.

“Fans on the Web site are trading their favorite nights,” he says. “Some fans have gone so far as to make their version of a live greatest hits album. When you see that sort of application, you get closer to your fans.”

The wristbands not only bring in a little extra income, they help fight the inevitable. With cameras and recording equipment so small today, bootlegging is one of the facts of concert life. Fighting it is essentially repeating the industry’s folly with downloaded music in that it can alienate fans.  Embracing (and quietly controlling) it, though, establishes a bond.

“With YouTube, you can’t shy away from bootlegs,” says Thomas. “I’ve done a show and on the bus, I’m able to see parts of it on YouTube before we leave the venue. [But] I’ve got a great band and I’m proud of what we do. When people see it on YouTube, they say ‘oh I’d like to go see them live’.”

Beyond the wristbands, Thomas has also established a partnership with Research in Motion to launch the Blackberry’s first mobile artist app. And he is the premier artist on Atlantic Records’ Fanbase app for the iPhone, where fans can listen to clips, read lyrics, leave him voicemails, chat with other fans and see a feed of both official and unofficial news and photos. Coming soon are a pair of games: “Inner Beauty” and “Reverse Barbershop.”

It’s hard to believe it’s been 30 years since portable music made its big splash, but it was on this day in 1979 that Sony unleashed the Walkman on the world – setting in motion changes that would fundamentally alter the way the music industry works.

A portable cassette player might seem commonplace, even quaint, these days, but it was revolutionary at the time. Previously, music could only be enjoyed on a home stereo system or in a car. The Walkman set it free.

That freedom came at a cost, though. The first Walkman sold for $200. That’s just shy of $600 in today’s economy.

The system’s headphones became an iconic look throughout the 1980s. Competitors quickly began churning out similar products, but none had the cachet  (or staying power) of Sony’s product.

The original Walkman, the TPS-L2, was something of a giant by today’s standards, weighing in at 14 ounces and covered with clunky buttons and a leather case. Originally dubbed the “SoundAbout” in the U.S., it came with an orange “hotline” button allowing users to fade the volume to the background so they could hear people talking to them and a second earphone jack, so they could share their music.

No one – including Sony executives – expected too much from the device saleswise. But that skepticism vanished less than two months after launch, when initial projections were blown away.

It was, in fact, the Walkman that marked the beginning of the end for vinyl records. By the mid-80s, cassettes were outselling albums. The entry of the CD in 1985 sealed the format’s fate.

Over the years, Sony has evolved the Walkman lineup, morphing it into everything from a portable CD player to a MiniDisc player to the MP3/multimedia player it is today. All along, though, the company has continued to make a cassette-only model.

There’s something kind of refreshing about that. Too many companies innovate to the point of forgetting their heritage. Whatever Sony’s faults today (and, to be certain, those are plentiful), you have to respect it for honoring the original product that made it a true leader in the music market.

Of course, these days, the Walkman plays second fiddle to the iPod and the music industry has changed dramatically, but on today’s anniversary, it’s worth saluting the gadget that got us all to where we are today.

Got a Walkman memory? Share it with us in the comments.

Much as the digitally savvy love to criticize big media for not embracing new digital business models enough, we have to acknowledge sometimes those moves bit them in the ass.

Case in point: Warner Music Group, which yesterday took a $33 million write-down on its $35 million (combined) investment in LaLa and iMeem, two social music discovery sites, as noted by PaidContent. As CEO Edgar Bronfman put it, that essentially erases its digital investments. The company is now focusing on its artists and letting other folks try to figure out online and see if there are any good ways to compete with Apple.

Particularly disappointing has been MySpace Music. As Bronfman put it bluntly, "MySpace Music has been slow to create monetization tools and to be able to impact in a revenue-generating way the massive audience that they have been able to attract."

He's not the only one. CNET News recently reported, "At a MySpace Music board meeting last month, the company's CEO, Courtney Holt, got an earful from several music label representatives" unhappy about the lack of money they're making.

Yesterday in its earnings call, News Corp. (MySpace's corporate owner) admitted that MySpace costs have risen 7% in large part due to the rollout of music, but ad revenues are down 16%. However the company thinks it has a bright future.

"I think MySpace Music is less than six months old and has a tremendous amount of traffic," president/COO Peter Chernin said on a conference call with analsyts and media. "We're working hard on monetization opportunities that are just beginning to roll out."

Warner's Bronfman seemed optimistic about Vevo, the new musicvideo portal that Universal Music is launching with the support of Google's YouTube. But he's none-too-excited about the prospects of another site built on advertising alone.    

"Any premium video model is going to have to include very significant monetization opportunities above and beyond advertising in order to be effective," he said bluntly.

Charging for music videos? Well, good luck with that.

Most of the games and other apps I have seen that use the iPhone and iPod Touch's motion sensing capabilities are difficult to control (like aiming at things in a game) or really gimmicky (shake to get a result instead of pushing a button!). But this new turntable app for the second generation iPod Touch (no other version and not the iPhone) is very clever and cool, if not necessarily useful.

As Gizmodo explains, "It works like a turntable, changing the speed depending on the revolutions-per-minute." It's not in the app store yet, but I don't see how this doesn't become popular if/when it does. And if it gets improved and starts including the ability to scratch and control tracks precisely, it could actually become useful to DJs and a respected little part of the music industry:

Spinning vinyl ipod app from Theodore Watson on Vimeo.

YouTube may be the world's biggest video site, but all the action around it recently has to do with music.

In the UK, Google is blocking access to thousands of musicvideos on YouTube after it failed to reach an agreement with the MCPS-PRS Alliance, the country's main royalty collector. As PaidContent is reporting, the back-and-forth is full of the typical accusations. Google says it was being asked to pay "many, many times more for our licence than before," and would "lose significant amounts of money with every playback."

An MCPS-PRS rep, of course, sees things 180 degrees differently, stating, "Google has told us they are taking this step because they wish to pay significantly less than at present to the writers of the music on which their service relies, despite the massive increase in YouTube viewing."

In most of these types of licensing disputes, the reality is that the licensor (MCPS-PRS) things they deserve more because their content is being viewed so much more than in the past, while the licensee hasn't figured out how to monetize that content enough in order to justify the higher royalties. And so consumers lose out on the content.

But what's particularly interesting is how big a deal music is becoming on YouTube. This UK royalty fight isn't the only evidence this week. CNET has a profile of Muziic, a new application that promises free access to tracks from "the world's largest music database -- YouTube." It simply searches the billions of videos on YouTube to find ones that use the tracks the person is searching for, and then plays the video in a tiny window (in order to satisfy Google's terms of use), but focuses on the music.

Though it hasn't been shut down yet, Google seems none too happy, telling CNET, "On a preliminary review... it appears that the site violates our API terms of use." Google, of course, can't be happy it will be forced to pay royalties for videos it can't really monetize. And while they haven't yet responded, you can bet your life savings that the labels will want Muziic shut down, since it's essentially an on-demand listening service like Rhapsody for which they're used to getting different, higher royalties than YouTube.

And of course all this is happening against the backdrop of labels talking to YouTube about setting up a Hulu-like site focused on music videos.

Remember when MTV revolutionized the traditional music biz (please tell me you do)? Looks like YouTube might be doing the same to digital music.

Just a year ago plenty of people (including me) would have said that the idea of a YouTube competitors that specializes in TV is silly. Why not put everything online video viewers want in one destination?

Hulu has proved us naysayers wrong. It turns out that a streamlined interface focused on television works great. The quality is better and it's easy to find what we want. It also works well for advertisers because they know their messages are going up against content with which they are familiar, unlike the viral video sites.

As is so often its wont, the music industry has a message: Us too! According to CNET News (amongst others), Universal Music is in talks with Google to create a YouTube offshoot, tentatively titled Vevo, focused exclusively on music videos and related content. The other major labels, all of which are currently in talks with Google about renegotiating their deals to distribute content in YouTube, have been approached about joining.

The music biz, of course, is continuing to struggle with declining CD sales and looking for new revenue sources, from downloads to ringtones to video games. Music videos, once produced purely for promotion, are now viewed as a primary option. They're already generating millions for the labels on sites like Yahoo and YouTube where they're streamed.

But a Hulu-like site could do much better, giving music videos a brand of their own, controlled by the labels themselves (in part), and designed to attract the highest paying advertisers.

It could also be a big win for Google, which missed out on the action with Hulu. It's still struggling to rejigger YouTube, and make deals with Hollywood content partners, to make up for the loss.

Do consumers want a site like that, though? The advantage for Hulu is that people often miss an episode of TV, or hear friends talking about it, and want to find it. That's not true of music videos. Since MTV no longer shows them, Vevo would become the primary home for music videos, not a secondary one as Hulu is for TV.

Do consumers care enough about music videos to justify that kind of investment? Given that Universal Music has the number one most viewed video channel of all time on YouTube, it's a decent bet.