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Apple's Next Big Thing: Home Entertainment

Sure, the company's on a roll. But does Apple have what it takes to repeat the success of the iPod in this notoriously fragmented venue?

The "Apple Death Knell Counter" is rather stagnant these days. A fixed feature on Mac enthusiast site the Mac Observer, the counter lists all the pundits who have predicted the death of Apple in some form or another. The rules are strict: It's not enough just to say that Apple sales might sag or that Steve Jobs faces major challenges. No, qualifying for a space requires a pronouncement of pretty absolute death of either the Macintosh computer or Apple the company. And only a few tenacious and infamously contrarian souls have dared to venture such opinions lately.

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Instead, most Apple watchers are spending their time gaping at the current runaway success of the company and speculating about what the company's Next Big Thing might be. The current odds seem to be on the much-rumored iPhone finally debuting--albeit first in Japan (see related story). But some coy remarks dropped by CEO Jobs at the annual shareholders' meeting in April, coupled with a column in early May by the Wall Street Journal's Walter Mossberg--who boldly asserted that an Apple media hub will be finally forthcoming--caused the buzz about an Apple-dominated living room to ramp up to a full throttle.

"It's fairly easy to see where Apple is going," says Charlie Wolf, an analyst at Needham & Co. "The home is the next major battleground between a diverse set of players--whether they are PC companies or consumer electronics firms--and Apple intends to be an aggressive participant."

Indeed, digital media servers for home use are starting to emerge as a significant product category, with more than 50 million units expected to be sold in 2010, according to market research firm Parks Associates. A digital media server is defined as a networked device with a hard drive and software for distributing media to various locations throughout the home--and it's a market that Apple is determined to dominate, according to analysts.

The timing of when that will happen is uncertain, however.

"Apple in the living room will be the story of 2008," says Gene Munster, managing director and a senior research analyst at Piper Jaffray. "They're very serious about making it a reality. But it won't be this year, or even the next."

The Digital Home Entertainment Ecosystem: A Snapshot

So what exactly would a digital home entertainment system look like? Although varying scenarios abound, there are some attributes that everyone agrees on. The key issue is one of interoperability: the movies or music broadcast via your satellite or cable connection must be easily and reliably captured and viewed on your TV, PC, or portable media device.

Ditto any media that you create yourself, or which you purchase and download. Content should be easily transferred between media players, no matter what type, or where they happened to be in the house. Preferably, all this will be wireless, eliminating the need for the cables and wires that currently clutter up living rooms. And--this is one of the most critical aspects--it would all be done legally (see Media Distribution Rights: Here Come The Judges (And Congress)).

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