By TODD BISHOP
SEATTLE POST-INTELLIGENCER REPORTER
Monday, January 5, 2004

Apple Computer CEO Steve Jobs was asked during a November meeting with analysts whether the company would ever make its iPod music player work directly with something other than its iTunes Music Store.

There was a noticeable sense of accomplishment in his voice when he answered. First he pointed out the dominant market position achieved by the iPod. Then he noted that the iTunes store had just captured more than 80 percent of the market for legally downloaded music.

"Why should we work with another music store when we're working with the Microsoft of music stores?" he asked, getting a burst of laughter from those around him.

Jobs was referring to the dominance achieved by Microsoft's Windows operating system on PCs. But more than delivering a competitive jab, his answer underscored the situation in which Apple finds itself -- as the market leader in music downloads and portable music players.

Microsoft would like to chip away at that lead on both fronts. The Redmond software company has said it plans to offer a music download service later this year through its MSN Internet service. With Seattle-based Loudeye, Microsoft last month began offering a service that lets other companies launch online music stores.

And later this week, at the Consumer Electronics Show in Las Vegas, Microsoft is expected to give new details about a line of portable devices that, in the view of some analysts, could give the popular iPod an extra measure of competition.


This is a prototype of Microsoft's Portable Media Center device (go to http://seattlepi.nwsource.com/business/155236_msftnotebook05.html to see it).

The hand-held devices, called Portable Media Centers, will store and play back video, music and photos. Microsoft unveiled a prototype at last year's Consumer Electronics Show, under the code name Media2Go. The company had originally hoped to see at least one of the devices on the market during the recent holiday season, but the first release is now expected in the second half of this year.

Companies including Samsung Electronics, ViewSonic Corp., iRiver International and Creative Technology are working on versions of the devices. Each will run a specialized version of Windows CE, the Microsoft operating system for smaller machines. The model is similar to the way Microsoft has worked with Tablet PCs, creating a specialized version of Windows XP and encouraging manufacturers to build for it.

Unlike portable DVD players already on the market, the Portable Media Centers will come with built-in hard drives for storing media. They will work in conjunction with personal computers in much the same way music devices do, letting people move files back and forth between them. Using Microsoft's Windows XP Media Center Edition on a PC, someone could also record TV shows and transfer them to watch on one of the devices, which are expected to come with screens 4 inches or larger.

A Portable Media Center with a 40-gigabyte hard drive is expected to hold up to 175 hours of video, 10,000 songs or 100,000 pictures, using Windows Media audio and video files.

The pricing, style, dimensions, storage capacity and weight of the Portable Media Centers will vary by device. Microsoft hasn't yet made public its recommended specifications. But analysts familiar with the devices expect the prices to range from about $400 to $700.

The lower end of that price range will put the Portable Media Centers in the same ballpark as Apple's 20 gigabyte and 40 gigabyte iPods, which retail for $399 and $499, respectively. Although the capacity of the Portable Media Centers to be sold in that price range may not be as much, they would offer a main feature the iPods don't, video playback.

Yet industry analysts are split on the question of whether the Portable Media Centers will represent a serious challenge to the iPod.

Matching up against the $499 iPods, the Portable Media Centers in the $400 to $500 range could do very well, said analyst Rob Enderle. "They could take a pretty good chunk of that market, if not own it," he said.

Enderle said he has seen some of the latest Portable Media Center prototypes, not yet publicly unveiled. The manufacturers appear to have "learned a lot from the initial Apple designs and from some of the Apple pretenders that have come out and not done very well," he said. "I think you're going to be impressed with the industrial designs of these players."

On the whole, however, combined audio/video portable devices are so far proving too expensive for many consumers, said Tim Bajarin, president of Creative Strategies, a technology consulting firm.

Such devices already on the market, not running the specialized Microsoft software, include the 20-gigabyte RCA Lyra Audio/Video Jukebox, which sells for $399; and the Archos AV300 series, which ranges from about $470 to $900, depending on storage capacity.

The prices are "not what I would call consumer-friendly," Bajarin said.

He said consumers may also be discouraged by the process of downloading movies to a computer and transferring them to the devices in a viewable format -- which can be more cumbersome and time consuming than the process of downloading and transferring music.

Although there are sites, such as the studio-backed Movielink, that allow people to download Hollywood movies, they generally use a rental model, placing limits on viewing.

The non-Portable Media Center audio and video devices that have been released are also noticeably larger than the iPods. The RCA Lyra, for example, is 5.3 inches wide, 3.1 inches tall and slightly more than an inch thick. It weighs 10.5 ounces. The 10- and 20-gigabyte iPods are about 4 inches tall, 2.5 inches wide, and a little more than a half-inch thick, weighing in at 5.6 ounces.

Matt Kleinschmit, a director at the Ipsos-Insight market research firm, agreed that the market may not be quite ready to pounce on the small, multimedia machines.

"My sense is that a portable media device that's both audio and video is probably inevitably where the market is headed, it is just pretty early at this point, and will probably appeal to the ahead-of-the-curve, early-adopter technofiles," he said.

And finally, Apple could add a new twist to the competition. Some industry analysts believe the company might unveil its own audio-and-video portable device, possibly at the MacWorld Expo, which begins tomorrow, or perhaps later in the year.


CES 2004

Follow the news from the Consumer Electronics Show in Las Vegas this week starting Thursday in the Seattle Post-Intelligencer and in Todd Bishop's Weblog.

http://seattlepi.nwsource.com/business/155236_msftnotebook05.html

Sorry... not planning on spending 400+ $ on Microcrap that'll crash halfway through the video.

It is expensive, but what can you expect for something with a TFT screen, hard drive and a powerful processor? (hardware acceleration does not work well on WM formats). I would expect more functionality from that hardware at that price through. More format support at least. Divx would be nice, but Microsoft really hates it. Same applied to ogg vorbis, and if you have both you really need the OGM continer as well. It should be possible to put those in without raising the cost as they would only require firmware updates, but Microsoft is determined to dominate digital media.

I dont think theres much demand for portable video players anyway. Who wants to watch movies or TV on a 4-inch screen, or carry a music player too big to fit in their pocket? MS appears to be relying on Media Center PCs to create demand, but MC PCs arn't selling too well either.

The success of the MSN music shop will depend on how unfairly MS promotes it. The MSN homepage is the most frequently set homepage on the net, not because of quality but because its the IE default. If the IE default links list was to include a link to the MSN music shop, and espicially if a future version of WMP has a "buy music" button which opens a browser window on the MSN store, then MS will be able to crush all competition and dominate the online music market.

And I'm sure that Microsoft's player will play back ONLY files in WMA fomat.

Well I say fuck that.

Multi-Functionality has been tried before... and if the player can't do everything well(fit in your pocket, play music, good quality screen) then its screwed. Just look at how quickly the N-Gage failed.

Bet it won't playback unprotected MP3, AAC, Ogg

Correct, goldenpi. Microsoft tries to exert its dominance into every market it jumps into.

Fortunately, XBOX has failed to surpass PlayStation and Nintendo Game Cube. It's just as well that other Microsoft ideas aren't working out as well as the company hopes.

They should just stick to making operating systems and office software. Their attempts to "branch out" may be somewhat costly.

:-:~ Phantom

Apple innovates, Microsoft imitates. Sheesh.

Eww, it uses Windows XP Media Center Edition. Yep, it'll give you the blue screen of death about 18 months after you purchase it..

Err, make that 18 seconds.

Xbox did very well for a newcomer to the console market. Largely because Microsoft, like Sony, went on shopping spree, buying games companies to ensure a plentyful supply of titles. Sony still has more, but between them they managed to crush the Gamecube.

On second throughts, if a portable media player has a moderate res TFT display, enough memory to hold a film and enough processing power to decode WMV I would expect it to have full PDA functionality, s this would require fairly little additional hardware

Competition is good. Let them go at each other!

Then he noted that the iTunes store had just captured more than 80 percent of the market for legally downloaded music.

This is incredible. I'm sure they included D-music.com and other associated sites as well.

What? they didn't (Gasp in horror) I'm sure it's a mistake, they wouldn't just ignore the thousands of groups who allow their music to be downloaded

iTunes getting 80% of legal downloads market share, umm. no.. I think indi artists, records, and indi music sites win that one, I think they where referring to RIAA music.

The best two will the the ones by veiwsonic and the ones by Creative labs will be the only ones to get, if they are even woth getting at all

Goldenpi, I thought the Gamecube made a comeback and got to 2nd place after they lowered the price.

you're right mtekk. I was trying to be sarcastic. my writing abilities aren't quite there yet.

They sound cool too bad they use the Major(Microsoft)crash's OS

Gamecube made a brief recovery, but not for long, and only after a series of price cuts.

I suspect the gamecube sells poorly because people are embarrised to own one

That must explain why my family has a game cube. Or why lots of kids around here have game cubes.

Game Cube has done pretty well- at least in Washington iy has. Remember, goldenpi, i live in Redmond. I'm less than ten minutes away from Microsoft's corporate campus. I go there sometimes to test their games and help them think of new ideas for their office software (they pay me with gratuities, so it's worth my time).

Redmond also just happens to be the headquarters of Nintendo of America. (Double whammy). Since I live in the same town as both, I happen to know quite a bit about the game cube/xbox wars.

I am convinced that Microsoft's "monopoly" role is slipping, and unlike a lot of other dmusic users, I actually like the company. I just think their success carried them a little too far. It will balance out. Linux and Apple have enough power to shift the market to a more evenly balanced future.

:-:~ Phantom