Technology

SanDisk's Video Salvo


The maker of the Sansa, a distant No. 2 to the iPod, has a new way to view downloaded content on a TV. It could turn up the heat on Apple

In the average consumer's home there is a gaping digital chasm between the personal computer and the television set. There are actually many ways to watch downloaded programs and movies on the living room TV—typically they involve the transfer of video files over a home network from a computer to some gadget connected to the TV. But few of them are easy.

Just ask the scores of companies—from Microsoft (MSFT), Apple (AAPL), and Cisco (CSCO) to Netgear (NTGR), Amazon (AMZN), and Netflix (NFLX)—that have tried mostly in vain to bridge that gap.

Memory chipmaker SanDisk (SNDK) hopes to take at least part of the pain out of the equation. On Oct. 22, SanDisk will introduce TakeTV, a large flash-memory drive that, once loaded with movies or TV shows from a PC or Mac, connects to a cradle that in turn connects to a TV. A 4-gigabyte version will sell for $99, the 8-GB model for $149.

Relying on Its Own Factories

Alongside the TakeTV hardware, SanDisk is launching a test version of an Internet video download service called Fanfare. SanDisk's main media partner for the launch is CBS (CBS), which will offer shows like Survivor, CSI: Miami, and some shows from Showtime, including Brotherhood, Dexter, and Fat Actress, for download. Another partner is Jaman.com, the upstart international movie download service (BusinessWeek.com, 2/2/07).

It's a bold move for SanDisk. Best known for its flash-memory cards used in digital cameras, SanDisk has in recent years emerged as the only company with a digital music player that can hold its own against Apple's iPod powerhouse. In part, that's because by relying on its own flash-memory factories, SanDisk can supply one of the most expensive and critical MP3-player components at cost.

In the U.S., SanDisk's Sansa line of players holds a healthy, if distant, second place behind the iPod (BusinessWeek.com, 5/8/06). The most recent figures from market research firm iSuppli peg SanDisk's global sales at 1.8 million units worldwide in the first two quarters of the year, or a little more than 9% of the 20.3 million iPods Apple sold in the same period. The NPD Group reckons that SanDisk sells about 10% of the digital music players in the U.S.

Despite its successes, results at SanDisk have been mixed. On Oct. 18. the Milpitas (Calif.)-based company reported revenue of $1.04 billion, up 38% over the year-ago quarter, but profits were down to $84 million, or 36¢ a share, compared to 51¢ a share in the year-ago period. Investors spanked the stock the next day, erasing more than 15% of its value on warnings that memory prices would fall as retailers lowered prices in preparation for the fourth-quarter holiday season. The company's results were also dragged down by charges related to its acquisition of M-Systems, an Israeli memory chipmaker.

Apple Vulnerable in the Content Arena

SanDisk could steal a bigger march on Apple in the area of video. True, Apple says it has sold 100 million TV shows and 2 million movies through its iTunes Store. And playing video has become a flagship feature on no fewer than four members of Apple's iPod lineup. But its home video player, AppleTV, has been described by Chief Executive Officer Steve Jobs as a "hobby," and sales are thought to be slow. Apple doesn't break out unit sales of the device, but iSuppli analyst Chris Crotty expects Apple to sell fewer than a million units by the end of 2007.

Apple also is widely seen as vulnerable when it comes to adding and keeping content-providing partners. It's had a very public license-renewal spat with NBC Universal that resulted in NBC's programming being yanked. Movie studios, nervous about piracy as well as being locked in to Apple's inflexible pricing structure, have been slow to sign on to iTunes.

Meanwhile, Amazon (AMZN) has recently launched its Unboxed video download service and partnered with TiVo (TIVO) for direct-to-TV video downloads. Netflix has also started its own video download service.

Resonating with Customers

SanDisk CEO Eli Harari says launching Fanfare has less to do with attacking Apple in a potentially tender spot than about establishing a toehold in an incipient market. "The video market right now is just embryonic," he says. "Media companies have spent a great deal of money creating their content and they don't want anyone to tell them how to sell it. And we agree with them."

For David Poltrack, president of CBS Vision, the TV broadcaster's research division, it's a matter of getting the networks' programming in places that consumers will use it. "When we tested the SanDisk product it clearly resonated with consumers," Poltrack says. "There are other ways to do this with more sophisticated products, but because of cost and complexity they're not as attractive. This is going to be selling at Wal-Mart (WMT)."

TV show episodes and movies will sell at prices similar to what's found on iTunes: $1.99 per episode for TV shows, and $4.99 for movies, but the service won't be bound by any strict pricing models. That opens the door to free ad-supported downloads, which Poltrack says is hugely attractive to content companies like CBS. "The consumer prefers the ad-supported model," he says. "They would rather accept ads than pay for content. There is a minority that would rather pay, but the majority wants the content for free."

Combining the TakeTV device with the Fanfare service creates the means of tracking ads, he says. "When you plug in that device to the computer and sign in to the service it knows who you are," he says. "Having people say these are the categories of ads they're interested in—that opens up a lot of ways for advertisers to use this medium creatively."

Taking a low-tech approach on PC-to-TV transfers could make a big difference to consumers weary of technical complexity, says Jupiter Research analyst Michael Gartenberg. "We know consumers want to watch downloaded video on their TVs. But the biggest weakness is the complexity of the home network," he says. "This takes the maddening complexity of the home network out of the equation."


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