September 5, 2007 / 12:05 AM / 11 years ago

New iPods to help Apple counter rivals

SAN FRANCISCO (Reuters) - Apple Inc is expected to unveil new iPods this week, injecting fresh excitement into the product line at a time when defections by partners have shown cracks in its digital music dominance.

Apple's iPod is seen in this October 12, 2005 publicity handout photo. Apple Inc is expected to unveil new iPods this week, injecting fresh excitement into the product line at a time when defections by partners have shown cracks in its digital music dominance. REUTERS/Apple Computer Inc/Handout

Apple has not revealed what Chief Executive Steve Jobs will announce at a Wednesday event in San Francisco, but analysts are betting on an iPod with a large touchscreen and a new form for the smaller iPod Nano.

There is also speculation that Jobs could pull a surprise out of his sleeve and show off iPods with the ability to buy and download music wirelessly, or finally announce the addition of the Beatles’ music catalog to the iTunes online store.

It may be more important than ever for Apple to keep its market-leading grip on music players as it finds its iTunes store increasingly under fire from content partners like NBC who are unhappy with how content is priced.

IPod sales accounted for 29 percent of Apple’s $5.4 billion in revenue last quarter, and the new models would hit store shelves in time for the key holiday shopping season.

“Competitors seem to always be chasing the last generation of Apple products. It makes it very difficult for competitors to make a dent against Apple in this space,” said Michael Gartenberg, an analyst with market research firm Gartner.

In typical fashion, Apple’s stock has been on a tear since the event was announced, rising 13.5 percent over the past week. On Tuesday, the shares jumped $5.68, or 4.1 percent, to close at $144.16 on Nasdaq.

Apple was also buoyed by a pair of reports, one from market research firm iSuppli saying the iPhone was the best-selling smartphone in the United States in July, and one from Piper Jaffray saying that sales of iPhones and Macintosh computers were on track to be slightly better than expected.

Updated models are also crucial to maintaining the market dominance of the iPods, which make up seven of 10 digital media players sold in the United States.

Last week, NBC Universal, the top supplier of video content to iTunes, said it would not renew its contract to sell shows on the service because it wanted more flexibility in the way it priced and packaged videos.

“That’s the stab in Apple’s back. If NBC walks, somebody else may walk. It needed somebody to step away because Apple’s got all the pricing power,” said Darren Aftahi, an analyst with ThinkEquity Partners.

Earlier this year, Universal’s music business said it would not renew a long-term contract to sell songs on iTunes, leaving open the possibility of striking an exclusive deal with another service.

ITunes is also facing more competition from the likes of Wal-Mart Inc, which last month began selling downloadable songs without any copy protection, and Inc, which is expected to launch its music download store this month, and MTV Networks and RealNetworks, which are combining their online music efforts.

“Why can’t everyone go digital? NBC can go to Wal-Mart and say, ‘Give us a better pricing plan and we’ll do an exclusive with you.’ I’m not convinced iTunes is going to be the digital media powerhouse everyone expects it to be,” Aftahi said.

Sony Corp, the Japanese electronics giant that once owned the personal portable audio market with its Walkman cassette players, is also trying to mount a comeback with new digital video players and is reported to be looking into a music and video download service.

ITunes is a relatively small part of Apple’s business, doing about $600 million in sales in the most recent quarter. But all those iPod fans have turned Apple into the third-largest music retailer in the United States, according to market research firm NPD.

“At this point the music stores and the services are driven by the music players, not the other way around. You don’t start shopping at the iTunes music store and go out and buy an iPod, it’s the other way around,” Gartenberg said.

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