By Robert X. Cringely

So we have don`t have a specific video iPod, but an iPod that does video. We have an Apple deal to distribute TV shows and music videos, but not movies. And the Apple Video Express wireless adapter I predicted is nowhere to be seen yet. Did Apple still change the future of television this week?

Probably.

It is easy to say that Apple`s deal to distribute a few ABC and Disney TV shows at $1.99 per show was motivated mainly by Disney`s desire to renew its movie distribution agreement with Pixar, Steve Jobs` other company. Corporate deals aren`t supposed to work that way, of course, with one public company being effectively paid for something another, completely separate, public company has done or will do. But this is Steve Jobs and his rules are different than yours or mine.

That $1.99 price is actually pretty amazing, too, both because it is so low and so high. The price is low because TV series compilation DVDs average $3 to $4 per episode. The price is high because the cost of goods is presumably close to zero (the show is already paid-for, though there may be some residual payments I am unaware of). There are no manufacturing or inventory costs. Marketing is effectively free if it is done on the network show, itself. That leaves distribution as the major cost and if Apple is able simply to match the kind of deals I`ve made for NerdTV, that episode of Desperate Housewives will cost just $0.15 to distribute. Double that to cover unanticipated overhead expenses and the gross profit on each $1.99 sale is $1.69. I`m going to guess that ABC gets $1.00 of that, which isn`t much revenue for ``Desperate Housewives,`` with its 30-second commercials going for $560,000. But for the Disney Channel`s That`s So Raven, $1.00 per episode is good money.

But it isn`t enough to shake the very foundations of network TV and bring Uncle Miltie back to life. And that`s the point. Five TV shows are an EXPERIMENT, not a business. The experiment going on here is all on behalf of the major movie studios, the very outfits that haven`t yet signed on to distribute their movies through iTunes. The studios want to see how the market accepts these TV series distributed in this format, whether the ability to download the shows has a material impact on their broadcast viewership (ratings), and most especially whether we see a surge of pirated copies of ``Lost`` - copies that can be traced back to iTunes distribution.

If the experiment is successful -- if these five shows are able to demonstrate incremental revenue increases that don`t harm their existing revenues or pose an unreasonably increased piracy threat -- then the studios and other TV networks will sign on and Apple will be in the movie and TV businesses, big time.

And what they`ll do to leverage that business is becoming clear. There`s an outfit called DVDstation that puts video distribution kiosks in stores and malls. As its name implies, you go to the DVDstation to pick out a movie and burn it on a DVD right there. Well, DVDstation just announced that you can plug your video-enabled iPod into their kiosk and download an HD movie in 90 seconds or less.

This is a compelling model, placing the equivalent of a completely automated Blockbuster video store in a few square feet at, say, The Gap or any other retailer that doesn`t presently have a competing video sales operation. The video-enabled iPod becomes the vessel for transporting movies from store to home and of course they don`t have to be returned. Apple, meanwhile, can sell iPods to people who like movies but don`t typically carry their music with them -- a whole new class of iPod customers.

For now, of course, this can be done only with the new iPods, but it wouldn`t surprise me if at some point older iPods gained this digital vessel capability, minus the screen.

It wouldn`t surprise me, either, if we see DVDstation kiosks appearing in Apple`s 100-plus retail stores.

But wait, there`s more! When the Apple experiment is complete and successful, we`ll see the movie studios sign on, at which point Apple will finally announce that Video Express, which is the component still required to practically link this new video system to your TV. That rash of products will also include Apple`s much faster 802.11n version of its Airport access point, which suggests that the Video Express will be 802.11n as well, which figures.

And of course that`s when Apple will start selling Sony flat panel TVs in its stores. I don`t think Apple will do its own brand of TVs like Gateway, Dell, and HP have done. They`ll stick with Sony, which makes sense for a ton of reasons including undermining any thought Sony might have to competing with Apple in the video distribution business.

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http://www.pbs.org/cringely/pulpit/pulpit20051013.html