Waiting for the other Apple shoe to drop

Tuesday, Apple announced its new assault on consumer living rooms by introducing both an Intel-based Mac mini and an iPod stereo system. Steve Jobs also announced that these living-room targeted systems will use its Bonjour configuration-free networking system to connect to content on other computers and systems throughout the home.

The interesting thing about this event was that it was not billed as a big deal. It wasn't held in Moscone Center -- it was held in a little theater on Apple's campus. And the invitations were just for reporters and analysts to come see some "fun new products". Why is it I feel like Obi Wan Kanobi was hiding behind a curtain murmurring, "These aren't the products you are looking for."?

Well, because they aren't. This announcement was simply to reassure investors and buyers that the Intel transition is going smoothly and that all the products are getting updated along that strategy on schedule. And the introduction of the iPod stereo system was a polite way of saying, "Bose shouldn't be making more money on iPod speakers than we are. We're a quite capable consumer electronics company too."

Hold that thought. Consumer electronics company. Not iPod company. Consumer electronics. Stereos, check. DVD players, check (at least inside the Mac mini). TVs, check....wait. There weren't any TVs. That's because the Apple plasma TVs we foresee are waiting for two things: standard definition movies from the iTunes Music Store, and high-definition movies on Blu-ray disks.

The iPod and iTunes have taught Apple (and more painfully, most other digital music companies) that hardware and integrated online content are a nearly unstoppable combination. With iTunes just recently passing a billion songs sold, movies on video is clearly the next frontier there.

But the problem with movies, particularly high definition ones, is that they are just so darn big. Yes, we can argue that consumers might be willing to download a 3 gigabyte standard-defintion movie from the iTunes Music store, and I fully expect Apple to offer movies that way. But the problem is that no one is going to want to stream or download a high-definition version of Lord of the Rings weighing in at between 100 and 200 GBytes over their cable modem. That means if Apple wants to attack the TV business with its one-two punch of hardware and content, it needs a physical delivery system too. That means high-definition DVDs and/or high-def movies delivered via iPod.

Apple has been in the Blu-ray camp for high-definition movies since March of last year when it joined Blu-Ray's board of directors. So Blu-ray is a no-brainer for Apple. And since Blu-ray supports the ability to copy a disk to hard-disk, Blu-ray is also a natural for iPod use and transportation as well.

We predicted last year that Apple will introduce an all-in-one flat-screen TV system using the same technology as in the Mac mini, supported by an Apple TV network of iTunes content. We believe the company is still on track to rock the CE world this year with such a system. But they need Blu-ray to fulfill all the vision of a fantastic new visual experience for the living room, fueled by Internet-delivered TV shows and movies. And with a hard launch date on the calendar for Blu-ray in May, that day will likely come late this spring or summer. But Apple's low key marketing for this week's event in Cupertino said that that wasn't the event they were going to do it on. The question out there now is, will these products come on Apple's 30th anniversary of being in business on April 1?

Update: Given this AppleInsider article, We're not the only people saying that movies are coming.

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