The analysts maintain that Apple is monitoring how consumers receive the video playing features in Sony's PlayStation Portable (PSP). If consumers accept the PSP as a video playing device, it would validate the market for a multimedia version of the iPod.
"We would not be surprised if Apple eventually launched some form of multimedia iPod," Ben Reitzes and Jeff Brickman from UBS wrote in a research note.
Past comments from Apple chief executive Steve Jobs suggest that the introduction of a movie playing iPod is not part of the company's plans. But Apple is well known for its tendency not to reveal any details about upcoming products until the actual launch.
Sony's PSP features a high-resolution colour display and is capable of playing movies using the company's proprietary Universal Media Disc. The device is currently on sale in Japan and the US and the European launch is expected later this year.
A multimedia iPod would cost less than $500, the analysts speculated, and would feature a colour display similar to Sony's. It is likely to offer at least four hours of battery life and 60GB of storage.
The launch would not be expected before 2006, according to the analysts, "but [we] would not be surprised to hear more about this topic into the holidays".
A multimedia iPod would be followed by an iTunes for movies and video by the end of 2006, the report stated.
Such a move is not just a natural progression for the iTunes store. With the number of illegal movie downloads rising, the film industry is ready for a download service.
And because Jobs also heads up the Pixar animation studio, Apple has a good chance to venture into the video download market.
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