At E3 Microsoft showed a sneak peak of Xbox Music, which was described as "an all new music service coming soon to Xbox, Windows 8 and Windows Phone based devices". As a result the Windows Phone Music+Video app is likely to be split into separate Music and Video portions and rebranded from Zune to Xbox Music. Key functionality such as Zune Music Pass and SmartDJ will be retained, but will be refined and new features will be added.

The sneak peak that Microsoft offered was light on details for the Windows Phone implementation of Xbox Music. We will learn more when the next generation of the Windows Phone platform is formally unveiled later this year. However, we expect to see an increased emphasis on cross music devices experiences, as part of Xbox's new SmartGlass functionality (e.g. sharing play-lists between tablet, phone and computer), and an increased emphasis on social sharing, building on the functionality of Zune Social.

Existing Windows Phone devices will continue to see the Zune brand in the Music+Video app and in the desktop Zune application. However, it is reasonable to assume software updates will see these replaced / updated in line with the new branding in due course, even though they will not be upgraded to the full implementation of the next generation of the Windows Phone platform.

A FAQ on the Zune site underline that Xbox Music is a continuation and evolution of Zune:

Q: You recently announced a new music service, Xbox Music. What’s happening to Zune?

The Zune music and video service has been a key component of Microsoft’s entertainment offering. We’re using our expertise from Zune to launch a brand-new music service under the Xbox Music brand.  When we launch, Xbox Music will bring you a world-class music library, and great new ways to enjoy, share and discover new music. We will release Xbox music on Xbox 360, Windows Phones and Windows 8 PCs and Tablets. 

Q: I’m a Zune subscriber. What happens to my music collection?

Zune Music Pass subscribers will continue to enjoy their subscription music collection via the Xbox Music service.  We’re confident Zune users will enjoy Xbox Music and we will share more details closer to launch.

As part of the announcement at E3 Microsoft showed a video of Xbox Music running on a Windows 8 tablet and the Xbox console (embedded below). This showed a Xbox Music application for Windows 8 (different to that in the current Windows 8 Release Preview), seamless transfer from a tablet device to an Xbox console, music discovery through SmartDJ and related lists, and sharing of friends music listening habits.