BofA Securities Sees Video iPod as 'Evolutionary, Not Revolutionary'

Banc of America Securities analyst Keith Bachman on Monday issued his latest Apple research report. He looked at the release of the video-capable iPod as "an evolutionary opportunity, not revolutionary. Apple had more content and more competitive advantage in the music market as compared to the video market."

Mr. Bachman took a look at some of the music videos now available for sale on the iTunes Music Store and found them "to have fast download speeds and good clarity." However, he wrote, "look for breadth of content to be the long-term regulator on adoption trends."

The analyst believes that Apple could increase consumer appeal by offering an iPod that lets consumers download programming directly from a TV. "However," he wrote, "we note that Apple would need to forge some type of relationships with the cable companies to get access to pre-programming capabilities, or an intermediary that already has such access, and have the content piped to the system."

In addition, the company would lose the US$1.99 it charges per episode or music video, although Mr. Bachman thinks that fee "is likely more material to the content companies like Disney." He expects to "see more deals cut with content providers, and look for progress in PVR/DVR capabilities in the next year."

In all likelihood, Mr. Bachman argues, "Apple is in the early phases of a long-term plan to grab a strategic position on the distribution of mobile video content ... We like Appleis strategy a great deal, and think it holds tremendous power in terms of the potential, but think it would be premature to assume that Apple will dominate the video distribution business as Apple currently does in the music business."

The analyst left his iPod sales forecast for this quarter at 9.3 million units, with the expectation of 29 million sold by the end of the year. He wrote: "We think the lesson from the weak iPod sales in the Sept. Q is the importance of replacement sales to continued strength in unit volumes as we head into 06."

Mr. Bachman left his "Buy" rating on Appleis stock and didnit change his $52 target price. At the close of trading on Monday, Apple shares stood at $53.44, down 1.04% for the day.

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