Wednesday, October 12, 2005

Why Apple Has Added Video To iPods

During Wednesday's press unveiling of the new video-capable iPods, Steve Jobs said something pretty fascinating: “Because millions of people around the world will buy this new iPod to play music, it will quickly become the most popular portable video player in history.”

In that one sentence is the key to what is about to be a huge business model shift at Apple. Until now, Apple has carried the iTunes store as an essentially break-even proposition intended to help promote the sale of iPods. We are about to enter an era where that shifts. Apple is about to start making money from iTunes, by reversing the formula with video sales.

Note that Apple did not introduce a higher-price 'video version' of the iPod, positioned above the music models. They launched a new line of music models that just happen to also play video. The efffect will be just as Jobs explained. Everybody who now buys an iPod will have video capability, whether they use it, want it, or even realize it is there, or not. Millions of video capable iPods will now begin insinuating themselves into the lives of customers around the world.

Instead of waiting until all of the back room deals could be made to launch a full-blown commercial movie/video download area in iTunes, and then hoping that critical mass of material would begin enticing people to buy compatible iPods, Apple has gone the other way. They are going to create a critical mass of video-ready iPods in the market, and then steadily add more and more paying video content to the iTunes store.

What will happen is that Jobs will soon be able to meet with a movie company executive, sit down to talk, and start the conversation with, "Well... our 8.3 million video iPod owners would sure like to be buying your movies..." Or, 11.5 million... or, any number of millions. That is the real reason Apple has gone ahead and brought video capabilities to 'normal' iPods.

Doing this has just paved the way to get much quicker and broader licensing in place for additional video content for the iTunes store. And that, folks, is very, very clever of Apple.


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