For Apple, a big step into media scramble

SAN FRANCISCO — SAN FRANCISCO -- In a sign of its growing influence in the entertainment field, Apple Computer Inc. dropped "computer" from its name yesterday and unveiled two devices that promise further upheaval in the rapidly changing media industry.

The long-anticipated iPhone combines a mobile phone, iPod and a new kind of hand-held Internet device that allows users to listen to music, watch video, surf the Web and make phone calls from almost anywhere, potentially changing the flow of information the way iPod revolutionized the distribution of music.


Analysts, who had expected the renamed Apple Inc. to introduce the so-called smart phone - which will start at $499 when it goes on the market in June - were impressed by the device's capabilities. They said it is likely to quicken the pace of fragmentation that has beset traditional media and entertainment companies.

Apple's shares were up more than 8 percent yesterday, shaking off recent concerns about the potential involvement of Chief Executive Officer Steve Jobs in the questionable timing of stock options grants at the Cupertino, Calif., company. Apple stock closed at an all-time high of $92.57, while shares of rivals such as Palm Inc. and BlackBerry maker Research in Motion Inc. fell sharply.


"They may have created a new category," said Tim Bajarin, president of Creative Strategies, a consulting firm in San Jose, Calif. "Instead of smart phone, how about brilliant phone? This redefines what a cell phone looks like."

The iPhone, less than half an inch thick, looks like a souped-up version of Apple's signature iPod. Unlike rivals such as the Blackberry and Palm's Treo, it has no keypad. Instead, it has a novel touch-screen that changes depending on use. When used as a phone, it has a numeric pad; and when browsing music, it scrolls through digital album covers.

Initially, service for the phone will be sold only by Cingular Wireless. No prices have been set.

"This is cyberspace in your pocket," said longtime Silicon Valley consultant and futurist Paul Saffo "It's going to be the new object of desire."

AppleTV introduced

In addition, Apple introduced AppleTV, a $299 device that whisks movies and TV shows downloaded off the Internet to televisions, a key to the growth of online media.

Taken together, the two announcements solidify Apple's role as a new kind of media conglomerate. One analyst called it a "digital lifestyle company."

Apple's iTunes is one of the largest music retailers, trailing only mass-market stores such as Best Buy and Wal-Mart.


Its dominance in online music has given Apple leverage to keep prices on most downloadable songs at 99 cents, despite pressure from the record labels to raise them. Analysts said Apple's new ambitions are likely to be felt first in the telecommunications industry and then spread to others.

The company aims to capture 1 percent of the cell phone market by next year, with a goal of selling 10 million iPhones. In its fiscal year that ended in October, Apple sold 39 million iPods.

AppleTV and iPhone liberate the Internet from the computer desktop and will lead to the bypassing of corporate control over entertainment distribution, Saffo said.

"If you want to deliver TV to consumers, you don't have to talk to a cable company," he said. "You can put it on the Web, and consumers can put it on TV. You'll see new kinds of companies doing video because they will be able to reach the consumers."

The iPhone is controlled by touch. By rolling a finger on the screen, a user can flip through virtual record albums, make a telephone call or scroll through e-mail. No mouse or stylus is needed.

When the device is turned horizontally, the image on the screen senses the shift and adjusts. One touch allows a user to merge calls into a conference call, and it is easy to scroll through voice mail rather than listen to all of the messages in a queue.


The capability for full Web access in a pocket could change the kinds of things people will want to do with the device and services provided to them. The iPhone might become a platform for activities such as playing games and keeping track of financial data.

"Once you have the thing, you will want to carry it all the time," said Mike McGuire, research director at Gartner Industry Advisory Services in San Jose.

Deal with Paramount

Apple also announced a new content deal with Paramount yesterday and made available 100 additional movie titles on Apple's online store iTunes.

"You always want to be in business with the leader," said Rob Moore, president of marketing, distribution and home entertainment at Paramount.

Moore said he considers the iPhone a "new platform" for the movie business. "When we look at the size of the screen and the portability, we're excited," he said.


Michelle Quinn writes for the Los Angeles Times.