Apple: A Pocket Full of Movies?

A video iPod would be more about storage than portability, but the device could have a significant impact on the entertainment business

By Arik Hesseldahl

Apple's big product launch last week was supposedly going to focus on the ROKR, the much-anticipated wireless phone-digital-music player it had co-developed with Motorola (MOT ). Instead, it was the iPod Nano, a flash-memory based music player, which stole the show, and all the headlines.

Apple's decision to release one high-profile product in such a way that it overshadowed another sends an important message about its priorities in the digital media environment it has come to dominate. Music labels are eager to push their content to wireless phones, but to Apple (AAPL ), the iPod is king of the digital media landscape -- and the company intends to keep it that way.


  But preserving that undisputed lead means the iPod has to evolve beyond music and incorporate video. Rumors of a video iPod have played their way through the various channels of Apple gossip for almost as long as there has been an iPod.

Apple CEO Steve Jobs has repeatedly dismissed the idea of a video iPod, arguing that the iPod's portability makes it far more suitable for music. You can listen to music while doing other things, the argument goes, but watching video is more of a consuming activity, and therefore inappropriate for a handheld device.

And that's an important philosophical insight into how the iPod may one day include video features. Music on the iPod is useful because it's mobile. I think video on the iPod will focus more on the living room. Remember the original iPod TV spots that touted "1,000 songs in your pocket" to the pounding beat of the Propellerheads? Would "20 movies in your pocket" have the same ring? It could, though having the movies with you everywhere you go would be somewhat beside the point.


  A video-ready iPod won't be about watching movies on the go. Laptop computers and portable DVD players already have that niche wrapped up pretty well. But the iPod could easily morph into a video-storage platform that connects to a TV set.

The connection for an AV cable is already available on the back of the iPod docking station, but right now it only supports the display of still photos and slide shows with customized soundtracks. A few changes to the iPod's insides -- notably a new chip from PortalPlayer (PLAY ) -- would allow a video connection.

Sure you could build a slightly bigger screen into an iPod and play videos on it, but portable media centers from companies such as Creative Labs (CREAF ) and Archos already do that, and they've failed to get much traction with consumers. Why watch a movie on a handheld gadget when you can see it on your plasma TV at home?


  And building the insides of digital-video players is getting easier every day. Just last week, Texas Instruments (TXN ) announced a new digital-video chip platform it calls DaVinci, which is intended to simplify the manufacturing of all kinds of video-enabled products. DaVinci may or may not get Apple's attention. But if would-be Apple rivals such as Archos and Creative use DaVinci to start producing better devices, it might in turn spur Apple to take some kind of action on the video front.

Meanwhile, high-capacity data storage is improving all the time. Unlike previous iPod models, which used a hard drive to store music, the Nano uses flash-memory chips.

Right after the Nano was announced, Apple's primary flash supplier, South Korea's Samsung, announced a new generation of flash-memory chips that can hold 16 gigabytes of data. That's more than three times the capacity of the original iPod, which was released in 2001. According to Samsung, the new chips can be combined to create a memory card that can store up to 32 gigabytes of data.

Hard drives are improving too. Japan's Toshiba has announced it's building small hard drives that use a new storage technique known as Perpendicular Magnetic Recording, which allows data to be packed more tightly and over a smaller area of the disk. Toshiba says it will use the technology on its 1.8-inch hard drives. This could make an 80-gigabyte iPod a reality fairly soon. At 80 GB, you're starting to reach the kind of capacity that can store a sizable music library and still have room left over for plenty of standard-definition video, and even a few hours worth of HDTV-quality video.


  The hardware wouldn't be difficult to build. Getting the content, though, is another matter. In building an iTunes-like video-download service, Apple would run up against ticklish Hollywood execs who are concerned about piracy. (Never mind the fact that video piracy via file-trading networks like BitTorrent is rampant.)

Studios agree they need to embrace digital distribution, but can't agree on a standard for digital rights management technology. That's what's keeping companies that could build a digital movie sales or rental business from having the kinds of offerings that would entice consumers by the millions.

Still, there are a few small-scale movie-download services. Cinemanow, which counts Microsoft (MSFT ), Cisco Systems (CSCO ), and Blockbuster (BBI ) among its investors, last month teamed with Archos to deliver movie downloads to portable video players. And Netflix (NFLX ) is said to be nearing a test of a movie-download service of its own. Apple would blow by them all, and instantly become the primary force in digital video in the same way it is in music, just by making a few simple moves into the video business.


 There were a lot of naysayers when Apple launched its music store, and indeed, many dismissed the first iPod. The same thing is true of digital video, which is about due for the same kind of bold shock to its collective consciousness that Apple delivered to the music industry when it launched iTunes in 2003. An iPod that plays home movies and downloads video podcasts might be a good start. And that would likely nudge the motion picture industry along. Soon enough, an online video store -- complete with a digital rights management framework -- would follow.

If Apple doesn't do it, someone else will. But my money is on Apple -- and Jobs. Apple is the only company that can do this right. And in fact, the movie industry needs some help in finding its way in the digital world. Apple has been this way before with music. It can do it again with video, and change the entertainment world once again.

Hessaldahl is a New York based writer for BusinessWeek

Edited by Patricia O'Connell

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