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Cost, Limitations Could Vex iPhone

Jan 15, 2007  •  Post A Comment

The high cost of Apple’s new iPhone and the limitations of the company’s iTunes online store may soften the tremors that the products are poised to send through the television industry.

The iPhone, which goes on sale in June, will cost as much as $599, more than other mobile phones with multimedia features. Apple TV, which lets consumers beam shows from their computers onto the TV set, in the past hasn’t let consumers sample Web video outside the 350 TV show and 250 movie titles in the iTunes library.

Apple CEO Steve Jobs overcame impediments of price and content selection when he unleashed the video iPod on the television world in November 2005. Since then, iTunes customers have purchased 50 million shows online, Mr. Jobs said Tuesday at his annual MacWorld address in San Francisco. Now analysts are watching to see whether the iPhone and Apple TV succeed in blurring lines between TV and other technologies the same way the iPod did.

Mr. Jobs demonstrated with the success of the iPod that consumers are willing to pay a premium for their toys, said Adam Guy, managing director of the wireless practice at the Compete research firm. Beyond the iPhone’s sleek design, it offers consumers phone service, e-mail, Internet browsing and all the entertainment capabilities of the iPod. Cingular will provide phone service for the iPhone.

While the iPhone is a “bold first move into the market,” Joe Laszlo, senior analyst with Jupiter Research, said the price will likely hinder mass adoption.

Even a blockbuster iPod phone won’t change cellphone buying patterns overnight, Mr. Guy said. “Given contracts and phone breakage, only a fraction of cellphone users are in the market for a new phone at any time,” he said. “With a price tag of at least $499, it’s unlikely many phone users under contract to other carriers will be willing to incur up to $200 in contract breakage fees even to get a cool phone.”

About 23.5 million mobile customers already have phones with integrated music players. Even accounting for the challenges facing the iPhone, the Apple phone is likely to accelerate the growth of the market, said Kevin Burden, senior manager of mobile devices with research firm Telephia.

To increase the desirability of the iPhone and Apple TV, Mr. Jobs should expand the TV content available on his iTunes store by striking more deals with networks to put popular shows on the service, Mr. Laszlo said.

The limits of the library are a vestige of the service’s groundbreaking beginnings, when Mr. Jobs teamed with Walt Disney CEO Bob Iger to put hit ABC shows on the service. That partnership sparked a rush by networks to put more material on the Web, and most are testing how best to distribute their programs on the Internet, either via iTunes or different sites.

Mr. Jobs still gets points for making it easy for consumers to buy shows online, Mr. Laszlo said.

“There’s a lot to be said for the fact that even though you are tied to one store, it’s also dead simple and you know it’s going to work and those are powerful, attractive features that argue in favor of it,” he said.