Ask Steve Jobs to describe the "next big thing" for Apple Computer Inc. (AAPL ), and a video iPod seems the furthest thing from his mind. For years, Apple's CEO has dismissed the idea of portable video players, insisting that no one wants to watch movies on tiny screens. Then again, he pooh-poohed an Apple-branded music player just months before releasing his iconic white gadget in 2001. What's more, two Hollywood execs say Apple has held talks with movie studios about downloading movies to PCs. While Jobs may be more interested in developing such technology to make it easier for Macintosh users to get movies at home, the talks have prompted speculation that the notoriously secretive Jobs will eventually launch a video iPod.
Whether Jobs's skepticism is real or simply a clever feint, rivals aren't waiting to find out. Convinced that a potentially huge market exists for portable video players, they're rushing to pack more technology and bring more content to the latest generation of models. Companies such as EchoStar Communications' (DISH ) DISH Network, Samsung, and Creative Technology (CREAF ) are bringing out a host of feature-laden new players in time for the holidays that are aimed at making them as synonymous with digital video as Apple has become with digital music. And by adding the ability to download shows such as Desperate Housewives or sports clips, competitors hope to beat Apple to the punch in wooing consumers. "The availability of content becomes more important when you talk about video, and the big difference between us and Apple is we already have it -- and they don't," says Mark Jackson, president of EchoStar Technologies Corp.
Trouble is, Apple's rivals in the digital music market were singing the same rosy tune before the iPod demolished them. In 2002, Creative's Nomad products and Diamond Multimedia Inc.'s Rio-branded digital music players were the industry leaders, battling over which company had the better technology. Apple jumped onto the scene, boosting the sleepy market from 1.8 million units sold in 2001 to nearly 30 million this year. It quickly won 85% of the still-growing market by combining great hardware and software that made music downloads a snap with a multimillion-dollar marketing campaign that convinced consumers that the iPod was the coolest thing since the Sony Walkman. The result: In late August, Rio exited the market, and Creative remains awash in red ink after spending millions on advertising in a failed effort to boost its market share.
CONTENT IS KEY
In some ways the portable video-player market today looks eerily similar to the music market in the days before Apple jumped in. Despite research showing that consumers are interested in portable video for commutes, travel, showing home videos, and entertaining their children, analysts predict sales of just 1.2 million media players worldwide this year. Many companies had hoped to make a big splash early on with players using Microsoft Corp.'s (MSFT ) Portable Media Center software only to see buyers turn up their noses at high prices and tiny screens that are still generally only 3.5 inches across. The biggest barriers to growth, analysts say, have been lack of mainstream content, such as Hollywood movies and TV shows, and painfully slow downloads. "There hasn't been a company like Apple entering the market and offering content in one easy-to-find place," says In-Stat analyst Stephanie Guza.
Now, borrowing from Apple's winning formula, hardware companies are pairing up with content providers. Earlier this year, EchoStar took a 25% stake in Archos Technology, a French company that has some of the slickest products. Together they plan to start offering DISH Network's 11 million customers and new subscribers its PocketDish video player in three flavors, from $329 for a 2.2-inch screen to $599 for a 7-inch screen. They also believe they have solved the downloading problem. Movies that once took as long to download as they took to watch can now be transferred from a set-top box to a player in seven minutes. Meanwhile, Samsung is considering adding a satellite-television tuner to its YH-999 player for release in the U.S. next year. For its part, Creative is adding photo-card readers to its players and links to Web sites such as those of MTV Networks (VIA ) and CinemaNow Inc. Both firms have improved downloading speeds. Creative's player, the $499 Zen Vision, has a 3.7-inch screen; Samsung hasn't yet set its screen size.
For the market to really take off, though, portable-player makers probably will need to go further in creating easy-to-use one-stop shops that offer a wide array of video. And who better to do that than Apple, which already has brought music, short videos, and podcasts to its iTunes Music Store? Of course, that will happen only if Jobs changes his own tune -- for now he continues to argue that demand simply isn't there. Many analysts believe Jobs will bring digital movie downloads to home PCs and even to the living room before tackling portable devices. Perhaps. But rivals are taking no chances.
By Cliff Edwards in San Mateo, Calif.