Apple Portable Does Video. Notes.

By Richard Menta 10/13/05

It was over two years ago that I first wrote about the iPod Video, on July 2003 to be exact. I was one of the first people to put pen to paper when the rumors first started circulating. The rumors were not based on any insider knowledge that an iPod Video was in the making, rather I suspect that the excitement over the first Personal Media Players (PMP) the Archos Multimedia Jukebox and later the Archos AV320 (which I was reviewing when the rumors first hit) got the digerati to engage in some wishful Apple thinking.

I don't comment too much on rumors, but what made the iPod Video compelling - and what got me to write a business case for it in that first article - was there was another opportunity there. The opportunity was to create an online site that sells the previous nights TV episodes as downloads. That business case justified to me why the iPod Video made sense for Apple and why it had a strong potential to come true.

The 4GB iPod Nano is available on Amazon

Today Apple announced it will come true, all of it. The iPod Video will be paired with a video iTunes download site that includes, just to start, episodes of Lost and Desperate Housewives.

First off, calling it the iPod Video is a misnomer as the unit is just called the iPod. All standard iPods now handle photos and video. Like the iPod nano the iPod is available in both black and white with a 30GB model for $299 and a 60GB for $399.

Unlike the Archos portable PMPs the new iPod will not record directy from TV. Where the Archos can serve as a Tivo-to-go the iPod Video will only play video content you buy (or share).

One hour TV episodes of Lost and Desperate Housewives will sell for $1.99 per episode. Users can also buy three minute music videos, also for $1.99 each. Jobs commented he is not sure how the music videos will sell as most people view them as the promotional tools they were originally created to be. The fact that the short videos are priced the same as TV programs twenty times longer reflects how the music industry tends to overprice product while the TV industry is looking to create a new source of revenue through volume.

Time will tell how well the download video market will sell, but Apple has placed itself in prime position to build it. So far the leading competitor in portable video is the Sony PSP game player which to date has lead to the sales of several million UMD packaged movies and TV episodes. Sony has drawn its distribution success from the established model of selling a hard product via traditional retail channels. The Sony PSP movies are also formatted for a wide screen display, which is available on the PSP. The iTunes Videos will be processed in the standard TV aspect ratio available on the updated iPod, a hint that Apple sees television programming as a more fruitful commodity than feature films.

My predictions

My predictions are this:

Sales of TV episodes - Users are not really paying for the program since they can legally tape it on their VCRs for free anytime. What they are paying for is:

  1. The convenience of someone else digitizing the episode for them so it can be played on a portable device.
  2. The ability to enjoy each purchased episode commercial-free.
  3. A convenient place to select and download individual shows.

That is the value here. $1.99 for a one hour episode seems an OK price for the convenience (especially if it is $0.99 for a half hour episode), but since this is a brand new area pricing has room to fluctuate. The average season of episodes on DVD runs about $59 or roughly $3.50 to $4.20 an episode. Apple has clearly priced this service below the DVD market, which makes sense because the quality of the Apple downloads will be significantly inferior. What people are buying here is convenience and that includes the convenience of buying individual episodes, something not offered through the DVD marketplace.

If successful every TV studio will sell episodes and that is what I expect to happen. Eventually, this can include episodes of older shows that never made it to syndication or DVD like the great 2001 WB show Maybe It's Me. It can also include older television fare from the 50s and 60s at a discounted $0.99 for the hour.

Sales of Music Videos - $1.99 for a lousy three minute video? True, people are paying $2.50 for PART of a song when they buy ringtones, but I know of no one with more than a few ringtones. I suspect a small cadre of people will pay an extra buck for music videos, but I question the value in it for myself. Jobs says that iTunes will start with over 2000 music videos. If he succeeds in peddling them for that much money to anything but a small audience the major music labels will certainly do the happy jig. They will also be less in a position to cut iTunes off from their music as next year's licening negotiations are already turning acrimonious. It waits to be seen, but if TV sales are successful iTunes is less reliant on the major record companies and this will play well for them those negotiations..

The new iPods will be available in stores next week. We will acquire one for full review.

Other MP3 stories:

iPod Killers for Christmas 2005 Part I
iPod Killers for Christmas 2005 Part II

The 4GB iPod Nano is available on Amazon