Apple launches a video iPod

Will anyone buy video iPod?
Apple launches a video iPod, but are consumers ready?
October 12, 2005: 4:14 PM EDT
by Amanda Cantrell, CNN/Money staff writer

NEW YORK (CNN/Money) - With the launch of the widely anticipated video iPod, Apple CEO Steve Jobs is undoubtedly hoping that the skeptics who say consumers won't want to watch video on a tiny screen are wrong.

Today, Apple unveiled the widely-anticipated video-enabled iPod that allows users to download and play music videos, home movies, and one of five shows from ABC and Disney, including "Desperate Housewives" and "Lost." What's more, they can watch content downloaded onto the video iPod on a normal television.

The video iPod has a 2.5 inch screen, comes with 30 or 60 gigabyte memory, comes in both black and white, and will be priced at $299 and $399. It holds up to 15,000 songs and 25,000 photos, or more than 150 hours of video.

With price points that aren't dramatically higher than those for iPods without video, the video iPod could be what Apple needs to goose sales for the holiday quarter. Apple revealed during its fiscal fourth quarter earnings announcement last night that the company shipped 6.45 million iPods, including 1 million nanos, a product revealed just a couple of weeks shy of the quarter's end. But iPod shipments fell short of analysts' expectations, which ranged from 7.5 million to as high as 9 million.

Apple CEO Steve Jobs unveiled the iPod along with several other products, including a new iMac computer with a remote control to access music, photos and movies. The computer is designed to serve as an entertainment hub, executives said.

The company has struck a deal with ABC and the Disney Channel to allow users access to five television shows one day after they air on TV, six short films from Pixar animation studios and over 2,000 music videos.

As part of the video iPod launch, Apple also launched iTunes 6, which lets users buy the music videos, Pixar shorts, and episodes of "Desperate Housewives," "Lost," "Night Stalker," "That's So Raven" and "the Suite Life of Zack & Cody" for $1.99 each.

But will anyone buy it?
One of the biggest questions about the product's demand is whether anyone will actually want to watch video on a 2.5 inch screen. But with attachments, users will be able to watch downloaded videos and TV programs on a regular television.

"It's critical to remember that these are really devices that are attached to a much wider range of services and interests on the part of customers that I think are fundamentally changing what used to be television," said Mark Stahlman, an analyst at Caris & Company. "It's becoming much more personalized and much more interesting."

Users who missed an episode of "Desperate Housewives," for example, could download the program, connect their iPod to their TV, and watch the episode.

For now, though, movies are still not part of the picture. "This is truly a video iPod, not a movie iPod," Stahlman said.

What's interesting about the new iPod is not the fact that it plays video, but the fact that one of the largest media companies in the world has agreed to license content for it, said said Nitin Gupta, who covers Apple as an analyst at Boston-based research firm Yankee Group.

"Video was inevitable in digital audio players; to actually build the consumer demand portion of that, there really needs to be compelling content," said Gupta. "What's promising is that you have one of the biggest content companies in the world willing to experiment with this. But I'm doubtful it will appeal (right now). What will be more compelling is $10 for a whole season. But with Apple and Disney talking, it brings the ability for innovative distribution deals to come to light."

While some Mac followers are still skeptical about the demand for such a product, Roger Kay, an analyst with Endpoint Technologies Associates, points out that while the idea of the video iPod may not appeal to adults, it could be a big hit with kids.

"If you look at Generation Z, they are already holding Gameboys in front of their faces," he said, referring to the 10- to 18-year-old market. "The same kids that are holding Game Boys between their hands are going to think this is a natural thing and will say 'Oh, that's so cool, I need to have one.'"

Since video files are larger than audio files, industry watchers have also questioned the storage issue. Kay said one option for the company would be to create compressed versions of these files that will sit on its servers. What will happen to the ads that appear during the television programs during regular broadcasts is unclear.

Kay said that Apple has likely worked out the kinks on the newest extension of the iPod line.

"I'm confident that whatever it is Apple wouldn't put it on the market unless it's a pleasure to use. That's their business method. They don't bring something to market that's not going to be a great experience; they haven't made a mistake (in that arena) for years."

The company also announced a new iMac, the iMac G5, which includes a remote control which will allow users to optimize its new Front Row media package, which lets users play music, photo slide shows, DVDs and iMovies. It starts at $1,299 and also includes a built-in video camera.

Caris & Co.'s Stahlman said he thinks Apple is far from finished making new product announcements and will probably roll out more products in the coming weeks.

Analysts noted that the timing of the new product announcements -- one day after the company reported its fiscal fourth quarter earnings -- was interesting. Despite posting the highest revenue and earnings in its history and quadrupling its profit from the year-ago quarter, the company's stock plunged 10 percent in after-hours trading as investors expressed disappointment that revenues missed expectations. The company reported sales of $3.68 billion for the quarter; analysts had projected $3.73 billion.