Microsoft's Zune revenues fell 54% in Q4 2008 versus the same period in 2007. Ouch.

Here's what the 10-Q filed on January 22 says: "Zune platform revenue decreased $100 million or 54% reflecting a decrease in device sales." That puts Q4 Zune revenues at $117 million, or just 3.7% of Microsoft's Entertainment and Devices Division revenue.

According to NPD Group, the Zune device had a 4% market share in Q1 2008. That well below SanDisk's 11% and light years behind Apple's 71%. One analyst noted today "the iPod gained considerable market share against the Zune."

When the Zune launched a few years ago, the jury was fairly settled but still out on the traditional music subscription service. For many people, $15 per month for unlimited access to millions of songs was a decent value proposition. A symbiotic relationship with a portable music player was an important part of the service. Tie together access and hardware, the thinking went, and you've got a winner.

But look where things have headed since then. DRM of any kind -- even on tethered downloads -- gives a service a black eye. And not only does the $15 monthly price tag narrow the potential market, it is contrary to the direction the market has gone in the last year. Bundled services (e.g., Comes With Music) is now seen as the brighter hope for subscription services, and free streaming services have swelled in popularity.

For an indication of how misplaced a $15 monthly price tag is right now, look at the estimated monthly fee for the Isle of Man proposal. The island's government seeks a blanket license that would enable broadband customers to download unlimited music files from whatever source for around £1 per month.

If/when colleges pay a per-student fee to copyright owners, it won't be anywhere near $15 per month. For that price, Zune -- or Napster, or Rhapsody -- needs to improve the value proposition to a level that is all but unimaginable. If unlimited MP3 downloads will cost customers so little, the value of mere access will have to be even less.