Apple Takes Aim at the TV Market
Steve Jobs built a career, a company and, some would say, a cult by picking tomorrow’s fight -- a cunning the Apple Computer Inc. chief executive displayed Tuesday as he introduced an online movie service and a fresh crop of iPods.
Anticipating archrival Microsoft Corp.’s plan to unveil its own portable media player this week -- a potential iPod challenger called Zune -- Jobs again shifted the battlefield by showing off a device he called the missing piece that will fuse television and the Internet.
Eschewing his customary black turtleneck for a black button-down shirt, Jobs said Apple planned to introduce the device, tentatively dubbed iTV, early next year, just as Microsoft hopes to start building a market for Zune.
Making TVs and personal computers work together better is seen as the key step toward the broad online distribution of movies and television shows. The Internet is already disrupting Hollywood’s traditional business models as audiences migrate online. Apple, for instance, has sold 45 million video downloads since late last year.
But the transition has been slowed by the lack of a standard, easy-to-use way to display the countless choices of the Internet on the most popular screen in the house. People want to watch movies on their living room TV, not on their office PC or the tiny screen of a portable device.
“This is the missing piece. Here it is,” Jobs said, holding aloft an aluminum machine roughly the size of a 1-pound box of chocolates. “It’s going to let you enjoy your media on your big-screen flat TV.”
Rarely does Jobs provide glimpses of Apple’s pipeline. Tuesday’s peek may signal that despite Apple’s dominance of the portable entertainment market, it can ill afford to divert its attention from Microsoft.
Can Apple and its boss pick the next fight or will the Microsoft juggernaut overtake them the way it did a generation ago with Windows?
Analysts remain skeptical that Microsoft initially will grab anything more than the sliver of the portable player market not already claimed by Apple. They note that the Redmond, Wash.-based software giant is entering a market Apple dominates with 88% of legal music downloads.
“They’re certainly playing catch-up. They are coming to the market this fall basically in the same place that Apple was five years ago,” said analyst Van Baker of technology consulting firm Gartner Inc. “Could they do a good job with it? Yeah. Could they do some damage to Apple? Unlikely.”
Philip Schiller, Apple’s senior vice president of product marketing, said the company had encountered other formidable competitors, including Yahoo Inc. and Sony Corp. “We’re too focused on the work that we do to feel worried,” he said.
Five years ago, though, Sony miscalculated Microsoft’s potential in new markets and its willingness to lose billions of dollars as it builds a customer base.
Sony’s PlayStation 2 video game console owned half the market when Microsoft thrust its Xbox into an industry in which it had no experience. Xbox 360 is now the industry leader in next-generation consoles, and Sony is trying to get its entry, the much-delayed PlayStation 3, on shelves in time for Christmas.
The same two engineers behind Xbox -- J Allard and Robbie Bach -- are in charge of Zune. And the market is still young. Only about 21% of Americans own a digital music player, according to market researcher NPD Group.
“Robbie’s team is the strongest team at Microsoft,” Baker said.
In the short term, at least, analysts are betting on Apple. The Cupertino, Calif., company has managed to keep competitors off balance through rapid innovation -- even going so far as to discontinue its most popular iPod, the mini, last September and replace it with the more slender nano.
The latest announcements from Apple are no exception. The company has shrunk its gum-stick-sized shuffle MP3 music player, which has sold 10 million units, to the size of a matchbook to make it the smallest product on the market. The new version of its compact nano music player is 40% smaller with twice the storage capacity.
Apple is also revamping its iTunes online music store. The new movie offerings, along with the already available TV shows, will be presented in the same resolution displayed by most televisions, rather than the lower resolution of iPods.
The Times reported on Apple’s movie download service last week. Other companies -- including Amazon.com Inc.’s Unbox, CinemaNow Inc., Movielink and Time Warner’s AOL -- operate online video stores that enable computer users to rent or download movies. CinemaNow even allows burning some films to DVD.
By contrast, Apple’s new movie download service offers more limited content, launching immediately with 75 movies from Walt Disney Pictures, Pixar Animation Studios, Touchstone Pictures and Miramax Films.
It costs $9.99 to download library titles such as “Dumbo,” “Pirates of the Caribbean: The Curse of the Black Pearl,” “Shakespeare in Love” and “The Incredibles.” Films sold in advance or during the week of a DVD’s release go for $12.99, then the price rises to $14.99.
Viewers can initially watch downloaded movies on their iPods, new versions of which offer enhanced resolution and brighter colors. Early next year, Apple will sell its set-top box for $299, using a wireless home network to fetch the downloaded movies, TV shows or other video content from the computer and display it on the TV. It will work with either Macintosh or Windows computers.
Robert Iger, president and chief executive of the Walt Disney Co., said studios realize they need to meet the consumers where they are. Disney is Apple’s first studio partner to deliver online movies, a logical teaming considering that Jobs became Disney’s biggest shareholder when it acquired his Pixar Animation Studios.
“You can’t stop or slow down technology,” Iger said. “If you try to prevent that, unfortunately you fail.”
By showing his hand, Jobs is borrowing a time-honored Microsoft trick: inhibiting purchases from rivals by announcing a product that won’t reach stores for months.
Connecting TVs and PCs is not a new effort. Microsoft, for instance, has been trying for years to gather an audience for its Windows Media Center Edition software, which allows users to record and replay shows on computer as with a VCR.
A Microsoft spokesman said it has sold more than 16 million copies of Media Center Edition but -- its most popular form of media center by far is the Xbox 360, the game system that can connect to the PC wirelessly to display photos and access recorded TV programs.
“If you want all that and more for the same price -- $299 -- get a 360,” said Microsoft’s Adam Anderson. “And check this out: It’s available today.”
Michael Gartenberg of Jupiter Research said Apple’s announcement raised the competitive stakes for Microsoft, which needs to not only offer a competitive digital music player and a compelling service but also find a way to differentiate itself from the industry leader.
“It’ll be interesting to see how Microsoft responds,” Gartenberg said.
