Not so much the "video iPod," but maybe smarter, more marketable, say analysts

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Not so much the "video iPod," but maybe smarter, more marketable, say analysts

San Jose (CA) – How exactly Steve Jobs was going to fit a fully-immersive, high-resolution, multi-channel stereo, video experience into a box the size of an Altoids dispenser, would have been a miracle. But not today, as Apple announced not exactly the miniaturization of all multimedia into your shirt pocket, but instead a smarter, sleeker iPod that oh, by the way, now plays some video.

This morning’s announcement, covered by TG Daily, included replacements to the basic iPod models, with 30 GByte and 60 GByte editions. The video playback feature comes by way of QuickTime, which is Apple’s implementation of MPEG-4 compression, here at 320 x 240 resolution. The screen is larger than it was, but at 2.5″ diagonal, it’s not Panavision. So perhaps it was smart of Apple not to tout video capability as the major feature of its new iPods, although video is what drove enthusiasm about today’s announcement.

“It doesn’t seem as though they’re putting the fact it’s video-capable at the forefront of this announcement,” noted Stephanie Guza, industry analyst with In-Stat, who pored over the fresh information from Apple along with TG Daily. Guza believes that consumers will perceive iPod as an upgrade with a fairly significant enhancement, not a new product. However, there is certainly something new about it that’s noteworthy, she points out: The new iPods mark the first time that a new consumer delivery service has been introduced to the consumer in an integrated package, upgrade or otherwise.

“What they’ve done is taken the classic white iPod,” said Guza, “and enhanced its functionality, giving us an easy way to get video should we want it. Over the next year, they’re going to be doing the research…we’re going to be doing the research, everyone’s going to be asking whether or not people are buying these and using the video function. If we find out that yes, Apple has finally driven the demand for portable video that the anemic PMP market needed, then I’m sure we’ll see changes to capacity, increased availability of video content that Apple offers.”

Apple’s new
video-capable iPod

Michael Gartenberg, senior vice president and research director with JupiterResearch – whom we talked to this morning prior to the announcement – agreed with Guza’s assessment. “It’s very clear, it’s not called ‘video iPod.’ It’s called ‘iPod,'” he told us. “It is first and foremost a music device. Apple is not going to do anything that would tamper with the core features that have made this thing a success up until now. It would be extremely foolish for them to do so. Apple has shown that they’re anything but foolish when it comes to understanding the market.”

Gartenberg learned something very interesting later in the afternoon which Jobs did not point out himself: The new iPods do not lock down the video playback function with restrictive digital rights management methods, outside of the FairPlay protection features already in use with iTunes. Consumers will be able to download many videos today via iTunes for $1.99, with various music videos, Pixar animated shorts, and ABC television series replays available right away. There may not be a one-price-fits-all situation here, as longer videos may end up costing more at some future point, but two bucks a pop is an attractive price point to start with. Even then, noted Gartenberg, consumers will not be locked into playing iTunes videos. “The fact that it’s not restricted just to video content from Apple alone, is pretty significant in and of itself,” he said.

“You have to crack the market,” added Gartenberg, referring to Apple’s approach to entering consumer video more slowly than some had anticipated. “They’ve shown they can do this deal with ABC, which is huge.” The other five major US broadcast networks will probably follow suit, he predicted. “They would love to sell it for $2 an episode, particularly when this totally does not interfere or conflict with any revenues that they get from DVD sales later on. So it’s a win all the way around for the consumer and everyone else.”

Third-party digital video recording software for QuickTime format is already available on the Macintosh platform, Gartenberg reminded us, enabling some iPods to possibly serve as playback devices for recorded shows.

“They’ve broken this Catch-22 – ‘Even if you have a great video device, what do you play on it?’ – by offering premiere Tier-1 video content available at reasonable cost,” Gartenberg remarked. “Critics need to remember that when Apple started the Music Store, it started with 200,000 songs and grew to 2,000,000 pretty quickly. I think we’re going to see a whole floodgate of content starting to emerge.”

Ross Rubin, director of industry analysis for NPD Techworld, is a little more skeptical with regard to the breadth of content readily available for the new iPods via iTunes. “Whether consumers will purchase the videos to go on it is a different matter,” said Rubin. “They’re going out with a far more eclectic mix of content than they did when they launched the iTunes Music Store with support from all the labels.” However, he said, the choice of content – a lot of which consists of fresh reruns – has some precedent behind it, as consumers have shown their willingness to shell out quite a bit of money for DVD box sets. “From the studio or network perspective, it’s pure gravy,” he added, “if they can get people to purchase this previously free content for $1.99 each,” especially since it won’t interfere with those DVD sales one bit.

Will there be enough breadth of content – not just reruns – to peak consumers’ interests, or to finally convince holdouts to purchase iPods? “I really don’t think so,” admitted Rubin. “I think for $1.99, they’ll do some impulse buy business with people who missed an episode the night before. I think maybe some fans will get the videos for artists they like, or people will tote around some home videos of their kids to show people, but I think they continue to aim the product at music.” Rubin appreciates the fact that Apple kept the same basic pocket-sized form factor, though this makes their screen smaller than that of Sony PlayStation Portable, as well as portable media players – what Rubin calls “seven-inch babysitters.” “It just goes to show that [Apple] is continuing with it as a primarily audio-based product that is video-capable,” he remarked.

“I don’t want to see a dedicated video iPod at this point,” said Harry Wang, research analyst with Parks Associates. “I am actually glad that it’s an upgrade to their current iPod, still focused on the music playback function, but adding this short video clip playback function.”

According to a Parks survey that Wang shared with us, only 17% of consumers polled would be willing to pay between $400 and $500 for a PMP. That number rises to 44% when the price plummets to between $200 and $300, which is exactly the iPod’s current ballpark.

If Apple had opted to produce a “quote-unquote” video iPod, separate from its main iPod line, said Wang, Apple would have had to make considerably more content deals and DRM agreements than it did. Take one look at the current state of the high-def videodisc industry to see how well these things generally go down. A real Apple-produced, video-dedicated playback device would have to have been much larger, like the Sony PSP, and thus no longer an iPod. “You have to make this perfect,” said Wang. “I know Steve Jobs is trying to make every product as perfect as he can. So if he cannot do it at this point, he’s not going to introduce a dedicated video iPod. I’m glad he didn’t do that.”