Editorial: iVideo, what we (and you) are expecting

After years in the shadows, portable video is about to go mainstream: according to reports out this week from respected journalists, analysts, and columnists, Apple is rapidly preparing to sell digital video content and new portable devices that will play it. Since Apple has not publicly commented directly on its portable video plans, this editorial does not presume to speak definitively to what will happen, but suggests possible and likely outcomes based on the best information available.

On a side note, we acknowledge two things at the onset of this editorial: first, some of our readers – at least, for now – have said that they absolutely do not want to buy portable video players. And second, other readers have said that they will refuse to use anything smaller than a laptop screen to view video content.

As of today, these perspectives are well-established, and we have no desire to pick a fight with their proponents. Moreover, both crowds are essentially claiming to be satisfied by existing alternatives: buy nothing, or buy a laptop and watch DVDs. So if you’re in one of these two camps, be aware that the bulk of this editorial is aimed at a different audience, but we’ll address your interests directly at the end.

New Apple Portable Hardware in September?

Between these two extremes, there’s a significant middle ground that many people expect that Apple will exploit in time for the holidays this year. According to a Wall Street Journal report published earlier this week, Apple has been developing an iPod-like device for video content, and could unveil it as soon as September. The date is not trivial. Apple will host an Apple Expo in Paris in September, presumably an ideal place to unveil a significant new device, and highlight its anticipated international appeal.

Is an Apple Expo unveiling likely? iLounge’s Larry Angell suggests not, noting that the company has not unveiled significant full-sized iPods at trade shows: at best, Apple held special, invitation-only “music” events, but sometimes did so without any event at all. (The original iPod, and third-generation iPod and iTunes Music Store were introduced at special Apple events; the fourth-generation iPod debuted with a high-profile magazine cover story.) However, Apple has introduced several other iPods at trade shows: the iterative second-generation at 2002’s Apple Expo in Tokyo, the iPod mini at Macworld in 2004, and the iPod shuffle at Macworld in 2005. The latter two devices were arguably the most mainstream products developed by the company, and best suited to the huge surge of mainstream media attention Apple enjoys at trade shows.

Several fair questions, then, are whether: (a) the new device is anticipated to be a mainstream product, (b) what sorts of features it will offer, and (c) what it will need from a software perspective in order to succeed. We’ll look at each of these questions in turn below.

The Mainstream Apple Video Player?

Analysts and retailers have reported that the most popular iPods are – not surprisingly – the least expensive ones. iPod minis and 20GB iPods were top-sellers during the period in which they represented the lowest-cost offerings in the iPod family, and today iPod shuffles are estimated to account for 3 million of the 6 million iPods shipped each three months. If Apple was interested in quickly moving high volumes of portable video players, it seems logical that the company would aim for a price point in the consumer-friendly $300 range, give or take the standard $50 as an Apple luxury tax.

But history suggests that Apple will not do that – at least, this year. Last July, Apple introduced the fourth-generation iPod, and simultaneously shrunk the iPod family to omit a $499 model, focusing on $249-$399 models. In October, the company unveiled the 40GB iPod photo at $499 and 60GB iPod photo at $599, recreating its old price lineup and expanding it to include the most expensive iPod ever. A similar pricing shift has already taken place this year. Late last month, Apple dropped the price of its top-end 60GB iPod to $399, creating an identical vacancy at the family’s $499 point.

But there was a deeper reason for that move. According to many reports, the 60GB iPod photo was a comparatively poor performer at retail, a suggestion given credence by not just one, but two incredibly rapid price drops; the model fell by $200 in only eight months, dropping first by $150 after only four months. If $599 iPods don’t sell well, will Apple recreate the same pricing scenario this year with a new, high-end device, especially one that it hopes will rapidly achieve market success?

To place two portable video players at the $499 and apparently unpopular $599 marks would therefore be surprising, as would be the introduction of only one device at $499, denying consumers any choice of capacity. Moreover, Apple knows that Microsoft had very little success with last year’s introduction of $500 portable video players by Creative Labs and iRiver, despite the fact that they were significantly more powerful than the iPod photos unveiled at around the same time.

That leaves three major alternatives: (a) introduce the devices at $399 and $499, overlapping the current 60GB musical iPod with a 40GB video iPod; (b) introduce at $349 and $449, moving even more aggressively; or (c) let haters be damned and roll the device out just like last year’s iPod photo at $499 and $599. The latter approach would be old-school Apple strategy – the same sort of “we build the best products, even if only 4% of the market buys them” thinking that kept the iPod obscure for the first two years of its life. It remains to be seen whether the new Apple, committed as it appears to be to owning markets and developing huge pools of sellable digital content, will make the smarter choice to leverage musical iPod success to rapidly build a huge base of video consumers, as well.

Millions of current iPod customers could be converted, for instance, but probably not at $499 and $599 prices. iLounge’s Larry Angell predicts $349 (40GB) and $449 (60 or 80GB) price points, while our Jeremy Horwitz predicts $399 (40GB) and $499 (80GB) or higher, only because Apple so rarely surprises people with truly inexpensive technology. In light of the iPod shuffle’s aggressive introduction at $99, though, all of us hope that Apple will move equally aggressively in the video market, and avoid making the price mistakes that have dogged Microsoft and others.

What Will Be Inside?

The contours of an Apple portable video player can only be guessed at, but statements from the company, as well as outside reports, provide clues as to what might be in the offing.

The screen: Think bigger than iPod. Apple has pooh-poohed small screens for video several times in the past. For instance, CEO Steve Jobs told the New York Times in 2004 that three-inch video screens were unable to replicate a TV or theater-quality experience, unlike the concert-hall quality replication that headphones offer consumers. The company’s iPod product manager Stan Ng went further on this point in early 2005, telling Australia’s News.com that “for a player with a 3 1/2-inch screen, you have to wonder if it would be worthwhile.” Clearly, Apple dislikes the notion of screens smaller than four inches, but just what size screen is acceptable to consumers is open to question.

A widescreen display seems a foregone conclusion. Apple has gradually been shifting its monitors in that direction for years, and has focused attention this year on high-definition, theater-like video, always presenting movies in widescreen format. And there is now a well-regarded small widescreen LCD available: the 4.3” screen in Sony’s PlayStation Portable has received considerable praise. Whether there are enough of those screens available to supply Apple’s demands remains unclear, as does the question of whether the company would consider a larger (say, 7”) screen a wiser alternative. At this point, we would be quite surprised if that was the case, not just because of the price, but also for power consumption and other reasons.

What about the device’s innards? Following reports earlier this year that Apple had selected a chip from U.K.-based Alphamosaic, there has been speculation that an Apple portable video player would be based on a sophisticated, power-efficient BCM2702 or BCM2705 processor now owned by Broadcom. These chips are an order of magnitude more powerful than the PortalPlayer chips used in today’s iPods, and conceivably would enable both video and games to be played on the new device. They promise 30 frame per second, VGA-quality (640×480) playback, both specifications that we expect Apple would demand.

The chips are also capable of realtime MPEG-4 encoding, which is to say that Apple’s device could also record video, but it’s entirely possible that Apple would cripple that functionality to appease movie and TV companies. (It’s our view that such a move would be foolish, and quickly exploited by competitors; a wiser move would be to lock recorded content with DRM and limit (not preclude) its transfer to other devices.) An additional wildcard feature is the chips’ ability to capture 8-Megapixel digital still images, which suggests that it could be bundled with camera functionality if Apple wanted to do so. Depending on the company’s intended price point, this might be entirely impractical, or could just lead to a really interesting new accessory attachment. There is also the possibility that Apple won’t use an Alphamosaic chip at all, in which case all bets on functionality are off.

Regardless of the screen and chip inside, it is highly likely that Apple will employ two well-established technologies in the new device: its H.264 video compression codec and the same 1.8”-sized hard disk drives that are used in current full-sized iPods. H.264, or MPEG-4 Part 10, is capable of dramatically compressing video content, and can create portable-friendly movies that require around 1/10 the space of current DVDs. Alphamosaic’s chip supports H.264, as well as the advanced audio format AAC Plus. As a result, a 60GB hard drive could hold over 100 movies rather than the 10-15 it could hold with the older MPEG-2 compression used by DVDs, and four to eight times as many shorter TV shows. (Actual numbers will vary based on whether the user wants the video to be watchable only on a small screen, or viewable on a larger computer ot TV screen as well.) Our gut feeling is that a video-enabled device will be the first to feature the 80 GB hard disk announced late last year by Toshiba; such a large disk is best-suited to store the collected movie and music libraries of early adopters.

There are two other possibilities, each worth mentioning. Apple could introduce a screenless device that would serve as nothing more than a portable TiVo, connecting to whatever television you happen to be near. Though possible, we all discount this possibility, as it wouldn’t be anywhere near the breakthrough, useful everywhere product that an iPod was – especially on airplanes. The other possibility is that the device will have both a screen and video-out, like the current color-screened iPod, an option we think is more consistent with Apple design philosophy. Only one of the two Broadcom/Alphamosaic chips – the less expensive BCM2705 – supports video out. Regardless, we suspect that Apple may, like Microsoft, try to limit recording functionality to a Media Center-like piece of computer software (and possibly hardware), but hope that’s not the case, because competitors are and will be offering more flexible options.

Software: iVideo and the iVideo Store?

Over the last week, several publications have reported that Apple is currently in talks with music companies, movie studios, and media conglomerates, with plans to sell digital versions of everything from movies to television programs, music videos and Disney cartoons. In fact, music videos are already being sold through the iTunes Music Store, generally as special edition versions of $9.99 albums, repriced at $11.99 to reflect additional video content.

But does anyone really want to pay for and watch music videos, which have never cost a dime on MTV and have similarly only enjoyed limited file-sharing online? In our view, probably not. And we think Apple knows as much. It has barely promoted the music videos already sold through iTunes since version 4.8, and devoted significantly more promotional time and effort to its later-introduced support for free audio podcasts.

Why wait to promote videos that are already available? Columnist and pundit Robert Cringely has written that Apple is planning iVideo, under that name, as a download service for movies. If true, Apple is presumably waiting to get all of its pieces in place before launching a major video-focused publicity campaign. That’s probably a good idea.

But would it be enough for iVideo to simply serve as an iTunes Music Store for video content? In our opinion, the answer is no. People do not want to pay for all of the content they are loading on to portable media devices: they want to use existing content they own, and may be willing to buy more online thereafter.

So, just as with iTunes, Apple will need an application that serves at least three different purposes: downloading service, library management, and encoding tool. If integrated with a television, it might also incorporate Media Center/TiVo-like recording features, as well. There are reasons that iTunes as currently designed isn’t ideally situated to handling several of these tasks, but most of them could certainly be remedied in the upcoming version 5.0. These features could also be shifted into a separate application.

Converting Your Existing Video Library: Problems and Solutions

The key feature of any such program would be a means to convert one’s existing DVD library into digital video files viewable on the portable device. While consumers may be willing to purchase some videos online – “some” depending on the required download time, pricing, and ability they have to easily create an archival copy off of their computers – they are generally not interested in re-downloading their existing DVD collections, or paying for that privilege, even if the replacement movies are in high-definition. They also will be hesitant to pay for current television shows that they can record with a TiVo or other device for free. In the absence of the ability to play back these files without conversion, easy, free video conversion for existing files – like iTunes’ current integrated CD ripper – is therefore an absolute must.

Apple representatives have publicly gone on record to suggest that this is a more significant legal challenge than a technical one. iPod product manager Stan Ng, for example, noted earlier this year that “there is no legal way today of taking a DVD and making it viewable on a portable device.” While there are still questions on that point given consumers’ traditional “fair use” exceptions to copyright laws, say nothing of the fact that are are screened portable DVD players that can play back DVDs, the broader point is well-made: as self-appointed protector of the music industry’s presumed digital rights, Apple is unlikely to make any move perceived to facilitate piracy.

That leaves Apple with two alternatives, which could be executed separately or together. The safer one would be to seek permission from companies to allow their DVDs to be ripped by Apple’s software into DRM-wrapped files, subject to transfer limitations much like iTunes music files. Another option, preferable to many consumers, would be to enable the video player to play back open standard, DRM-less videos in addition to encoded ones. We strongly hope that Apple does both, and if the capabilities of QuickTime 7 and iTunes 4.8/4.9 are any guide, H.264 won’t be the only supported format – just the preferred one. Without support for open standard, DRM-less MP3 files, the iPod would have been an abject failure, receiving the same scorn that Sony’s ATRAC-only players were universally dogged by until only recently. If Apple believes otherwise, it will have legions of people to convince – including us.

The reasons underlying a player with support for at least some open standards is bigger than just DVD playback: consumers will also be strongly interested in watching their self-made movies, recorded by camcorders and digital cameras, on this portable device. Early adopters will be especially likely to have libraries of other existing digital movies, too, just as the iPod received support from people with existing MP3 collections – not AAC ones. We suspect that they will not want to have to encrypt or transcode all of their own movies just to watch them, just as few people were willing to re-encode all of their music files into ATRAC or AAC to enjoy them on Sony or Apple music players.

A related and important issue is that re-encoding movies – not just today’s TV- or DVD-quality films, but tomorrow’s high-definition ones – is a time- and processor-intensive task. Computers owned by “average” consumers today can encode low-resolution movies in certain formats at perhaps one-fourth their original run times: 20-30 minutes per movie, give or take. But other formats, such as H.264, are considerably more time-consuming, and may take hours depending on the computer you use. Hours will add up into days for users with large movie collections. (Better computers, of course, can run faster, but mainstream users don’t own them, and may in fact have significantly slower machines – especially outside the United States.) High-definition movies, such as ones recorded by the Sony HD camcorder touted by Apple at the National Association of Broadcasters conference earlier this year, will demand even more time and space to compress.

Consequently, we expect that Apple will begin a concerted drive to push superior consumer-level video encoding hardware and software in the near future. Thankfully, the company has all the experience necessary to pull off the software side of this feat quickly. It would make a lot of sense for Apple to leverage its existing moviemaking tools and expertise, starting with an easy-to-use version of its video transcoding tool Compressor 2. Included with the professional-grade application DVD Studio Pro, Compressor is a powerful conversion utility and supports H.264 encoding from many existing formats. The recent evolution of Apple’s iLife suite of movie, photo, and music tools – and their impending arrival on Intel-based machines – shouldn’t be overlooked either.

Good News for Everyone

At the beginning of this editorial, we noted that there are three different audiences out there: people who don’t want portable video players, people who only want large-screened (laptop-like) portables, and people who are interested in devices smaller than today’s laptops. From our perspective, there’s good news for everyone: Apple will continue to make music-only iPods for people who don’t want video devices, and they’ll likely become less expensive over time. It will also continue to sell laptop computers with various-sized screens for people who want larger portable digital movie experiences, and will likely enable future computers to connect with high-definition digital televisions.

Then, someplace in the middle will be the portable iVideo player – real name yet to be determined – smaller than a laptop but a bit larger than today’s iPods, with long-term plans for cellular phones and other H.264-equipped devices. As hinted by Apple earlier this year, H.264 will be the glue that binds all of Apple’s video-enabled desktop, laptop, and portable devices together. It’s already being used to compress movies and realtime, multi-person video chat on Apple’s computers, and the results are impressive. Just imagine how those technologies will look on a portable screen.

We’re excited, and hope you are too. Let us know your thoughts – positive or negative – in the comments box below.

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