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Apple Unveils Video iPod, Disney TV Deal

Apple Computer Inc. (AAPL) Wednesday introduced a version of its market-leading iPod (search) that also plays videos and unveiled a deal with Walt Disney Co. to sell television shows like "Desperate Housewives" (search) after their first broadcast.

Apple has long aimed to make its devices the hub for digital entertainment inside and outside the home, and Chief Executive Steve Jobs (search) said the ABC deal was a turning point in bringing television to the Web.

"I think this is really pretty big and I think it's just the beginning," Jobs said in an interview.

The video iPod — a long-rumored product that could further spark sales of the popular brand — has a 2.5-inch screen and comes with 30 or 60 gigabytes of memory. The sleeker, thinner version will sell for $299 and $399, respectively, and holds up to 150 hours of video.

As part of its deal with Disney's ABC network, iPod users will be able to download five shows including ABC's "Desperate Housewives" and "Lost." Current-season episodes of the series will be made available at the iTunes music store the day after broadcast.

The entire first season of "Desperate Housewives" and "Lost" will be available immediately. The television shows are only available in the United States and cost $1.99 per episode, without commercials.

Media companies and computer companies have traditionally been at odds over bringing entertainment to the Web, given rampant piracy of music online, and Disney and Apple said their deal was a watershed.

"This is the first giant step in terms of making content available to more people in more places," said Disney Chief Executive Robert Iger. "This is just the beginning of what we believe will be a long and prosperous relationship between Apple and Disney."

Both the deal with Disney and the new products — which also include an iMac with a remote control that acts as a home entertainment hub — give Apple a chance to forge a leading position in online media, said Cross Research technology analyst Shannon Cross.

"They are positioning themselves as the company that will connect video content to the end users and control your living room," Cross said.

The company also plans to offer music videos for $1.99 each at its iTunes online music store. It will also offer short films from Pixar Animation Studios Inc. , which is also led by Jobs.

But Nitin Gupta, an analyst at Yankee Group, questioned how much the video iPod would boost sales of the devices, saying it will be hard to sell shoppers on the idea of watching "on-the-go" video on a little screen.

"The market is likely small for people who want to watch a portable video on a little screen," he said. "That will not be the main reason people buy the iPod. It is just an enhancement."

Apple has already sold more than 28 million iPods since their introduction in October 2001 and now has about 75 percent of the market for digital music players, representing a booming business that has helped the company's stock triple in the past year.

The company has also refreshed the iPod line-up many times since its introduction. Apple on Sept. 7 unveiled the iPod nano, a pencil-thin device that uses memory chips instead of hard disk drives to store songs.

The new iMac computer, which the company said would stand as an entertainment hub for DVDs, music and photos, will also compete directly with Microsoft Corp.'s Media Center.

The new products come after Apple on Tuesday reported a fiscal fourth-quarter profit that quadrupled from a year ago as revenue rose 56 percent and unit sales of iPods more than tripled.

But the company's stock fell as sales of the iPod — 6.5 million in the quarter — were less than some analysts' estimates, which were as high as 8 million.

Apple shares fell $2.32, or 4.5 percent, to $49.27 in late afternoon on Wednesday on Nasdaq.