July 18, 2005
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
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
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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
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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?"
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October 6, 2005
Apple May Unveil New Video iPod
During Next Week
By NICK WINGFIELD
Staff Reporter of THE WALL STREET JOURNAL
October 6, 2005; Page D3
Apple Computer Inc., in a much-anticipated effort to expand its position in
digital entertainment, next week is expected to introduce a version of the
iPod capable of playing video and to begin selling music videos through its
iTunes Music Store, according to people familiar with the matter.
A spokesman for the Cupertino, Calif., company declined to comment on
"rumors and speculation."
Apple recently invited media to an event next Wednesday at the California
Theater in San Jose, Calif. Apple has remained secretive about the event's
nature.
Speculation about an Apple foray into video has been a pastime of high-
tech analysts and Apple enthusiast Web sites. This past July, The Wall
Street Journal reported1 that Apple had started discussions with major
recording companies about licensing music videos for sale through iTunes
at $1.99 each. The report also said Apple had informed some media-
industry executives about plans to launch a video iPod.
Apple's video iPod is expected to have a high-quality color screen that is
larger than those on standard iPods, though the device is still small enough
to fit into the palm of the hand or a pocket, according to people familiar with
the matter.
A move into video is a risky bet for Apple that it can parlay the success of
the iPod into a category where entertainment companies have yet to widely
license their content. Roger Kay, an analyst at the market-research firm
Endpoint Technologies Associates, says music videos may appeal to some
consumers, but many others would prefer content with a story line such as
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movies or television shows.
While most popular music is now broadly sold on the Internet, TV shows
aren't widely available for purchase, and are likely to remain so because of
complicated rights issues. Apple has held discussions with media
executives about licensing TV programs, but for now it appears to be
concentrating on offering music videos, which it believes to be a natural
evolution for a music-centric device like the iPod, people familiar with its
plans say. In the past, Apple CEO Steve Jobs has criticized the appeal of
watching movies on a small screen.
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