Apple Looks to Sell Videos -- and Maybe iPods to Play Them
By NICK WINGFIELD and ETHAN SMITH
Staff Reporters of THE WALL STREET JOURNAL
July 18, 2005; Page B1
http://online.wsj.com/article/0,,SB112164093819487841,00.html?mod=home_whats_news_us
Apple helped ignite the digital music craze. The next possibility: video.
The Cupertino, Calif., computer and electronics company has recently held
discussions with major recording companies, seeking to license music videos
to sell through Apple Computer Inc.'s iTunes Music Store, according to
several people in the media industry briefed on the discussions. The
negotiations are a possible prelude to a version of Apple's hit iPod that
would play video, a widely expected gadget that Apple has told some
entertainment-industry executives that it could announce by September.
An Apple spokeswoman, Natalie Kerris, declined to comment on "rumors and
speculation" about the company's plans.
Any foray into video would represent a major gamble by Apple that it could
translate its smash success in digital music into a broader entertainment
franchise. If successful, such efforts could help create a significant new
source of income for media companies that are stepping up efforts to
distribute video content on the Internet, in part to counteract the growing
volumes of pirated movies, television shows and other programs being traded
online.
So far, commercial movie-download services haven't widely caught on, nor
have devices from Creative Technology Ltd., Samsung Electronics Co. and
others that have hard disk drives onto which users can transfer video files
from their PCs. Apple Chief Executive Steve Jobs, in fact, has derided the
consumer appeal of watching feature-length movies on portable devices with
small screens.
Yet Mr. Jobs has made a practice of criticizing product categories that
Apple later adopts; he dismissed music players that use a form of storage
hardware called flash memory rather than hard drives, for example, until
Apple began offering the iPod Shuffle based on the technology. What's more,
some analysts consider it telling that Mr. Jobs hasn't spoken out against
all forms of video on portable devices, such as television programs, clips
from personal camcorders and other short-form content.
Music videos, too, make sense because of the iPod's ready-made audience of
music lovers. Apple in recent months has started bundling a limited number
of music videos when iTunes customers purchase an entire album on the site.
Users who pay $9.99 for the latest album by the White Stripes, for example,
get a video for a song by the rock duo called Blue Orchid that can be
downloaded to a computer.
Building on that effort, Apple has approached the four major music
companies, Warner Music Group Corp., EMI Group PLC, Vivendi Universal SA's
Universal Music Group and Sony BMG, a joint venture between Sony Corp. and
Bertelsmann AG, to license music videos for sale through iTunes, according
to people in the media industry. The videos, which could go on sale as
early as September, would likely be sold for $1.99 each, with the
possibility of a discount if consumers buy a music video and a song at the
same time, these people say.
For music companies, a deal with Apple would represent another attempt to
generate income for the music videos they sometimes spend hundreds of
thousands of dollars creating. Music companies are still smarting from
their two-decade-old strategic blunder of letting cable network MTV air
video content for next to nothing, a decision that gave them little
participation in the creation of what has become a hugely successful
business for Viacom Inc.
Global music companies recently reached arrangements to charge online
services like Yahoo Inc. and Time Warner Inc.'s AOL to broadcast music
videos over the Internet.
Apple has also approached some media companies with television-production
arms about licensing shows, one media executive said, though securing
rights to sell television shows over the Internet is highly complex and is
likely to take longer than other forms of video.
If Apple succeeds in creating a video-distribution service, analysts expect
the company to follow up with a portable hardware device capable of playing
the content, just as it has used iTunes Music Store -- which makes little
money as a separate business -- to help promote sales of the highly
profitable iPods. The three-year-old iPod line has led a renaissance at
Apple, accounting for about a third, or $1.1 billion, of the company's
$3.52 billion in total revenue last quarter.
Speculation about Apple's product moves is rampant, and frequently wide of
the mark. Yet many analysts consider a video iPod a virtual certainty, in
part because of Apple's strength in video software, including the Quicktime
movie format and Macintosh video-editing software such as Final Cut Pro and
iMovie.
In one potential clue about the company's plans, Apple recently licensed a
chip from a subsidiary of Broadcom Corp. that could be used to display
video on portable devices, though it can also be used to power more
sophisticated graphics, a person familiar with the matter said.
"I believe it's inevitable," Richard Doherty, an analyst with
Envisioneering Group, a research and consulting firm in Seaford, N.Y., says
of a video iPod.
By adding video to iPods, Apple could help maintain the popularity of the
devices, which have nabbed more than 90% of the market for hard-disk based
music players. One threat may come from cellular phones as handset makers
add increasingly sophisticated entertainment functions to the devices,
including the ability to download music and video. Verizon Communications
Inc., for instance, recently added a limited number of music clips to its
mobile video service, which users access for a fee; other carriers are
expected to follow soon.
Mr. Jobs has also fielded questions about the prospect of video iPods as
head of Pixar Animation Studios, the Emeryville, Calif., movie studio
responsible for "Finding Nemo" and "The Incredibles." In a conference call
in May with Pixar investors and analysts, Mr. Jobs declined to say whether
Pixar plans to make its library of movies available for portable video
players, though he said Pixar had discussed the subject with Walt Disney
Co., its movie-distribution partner.
"So far there really hasn't been a successful portable video device other
than those that play industry standard DVDs, and that we participate in
just because we sell DVDs," Mr. Jobs said in the call. "So who knows what's
down the road?"
================================
George Antunes, Political Science Dept
University of Houston; Houston, TX 77204
Voice: 713-743-3923 Fax: 713-743-3927
antunes at uh dot edu
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