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Apple stakes future on new device

The company is working on portable and TV set-top entertainment devices that offer Net access and play everything from CDs to DVD movies.

Apple Computer (AAPL) is working on portable and TV set-top entertainment devices that offer Internet access and play everything from music CDs to DVD movies, as the company refashions itself for the convergence of consumer electronics and PC technologies.

The top-secret project could throw the computer maker back into the limelight of the high-tech industry if, as planned, the company combines a WebTV-like Internet access device with a CD or DVD player to create an easy-to-use, low-cost computing device, sources close to Apple said.

Apple declined to comment, but one source said the convergence project is code-named Columbus.

So secret is the project that details about the device are murky, but the breakthrough product may constitute the first evidence of Apple's efforts to develop a network computer device. It also appears to be the first tangible evidence of a major project conceived by Steve Jobs.

"Apple has bolted every porthole to developers who would have helped them with such projects in the past," says Richard Doherty, president of the Envisioneering Group. Still, Doherty has noted that there "is some frenzy of activity to extend the Mac OS to other devices," although he has not seen any such devices firsthand.

Unlike a network computer (NC), the next-generation device is expected to be marketed as an entertainment device or information appliance, instead of a PC replacement. Some prototype versions are capable of playing DVD movies as well as audio CDs, according to various sources familiar with the project. The upshot is that it would be an entertainment device with ties to the Internet, similar in the latter respect to a set-top box, such as the Microsoft-owned WebTV.

Content could have "hooks" to Internet Web sites, making Apple's device an enticing platform from a commercial point of view. Major developers are interested in the device, according to sources, because of the possibilities for highly targeted marketing, for instance. Developers like Disney already use Apple technology such as the QuickTime format for multimedia content authoring and playback, according to Envisioneering's Doherty.

The notion of an information appliance isn't new. In fact, Apple has already designed something remarkably similar in concept. The Pippin, sold by Bandai and a handful of other licensees, looked somewhat like a game console that could plug into a TV set but also came with a keyboard, played CD-ROMs, and offered Net access.

Development was canceled last year as Apple looked to stem a tide of quarterly losses but has been picked up again as Steve Jobs, Apple's interim CEO, looks for the next "insanely great" product to revive the company's fortunes.

Sources said the advantage of Apple's device is that both audio and multimedia content can be accessed without having to wait for a PC to start up, thanks to a technology called Enhanced CD.

Sony, Philips, Microsoft, and Apple helped develop the technology, which allows multimedia content to be placed on a regular audio CD.

Developers are eager to exploit a device such as Apple's top-secret Columbus because users could surf a related Web site and view music lyrics--or better yet, purchase related merchandise--instead of just listening to audio.

But Apple isn't alone. Microsoft and Sony, among others, are also racing to develop similar products.

Apple is also running the risk of upsetting the very content producers needed to make the software for the Columbus project. Because Apple's QuickTime technology is crucial to the development of interactive multimedia content, the company has tried to renegotiate licensing terms with a number of large developers, sources said.

So far, developers are balking at Apple's terms, and without developer support, the project faces an uncertain future, at best. Apple also needs to sell the device to a large number of users to convince Hollywood studios that it is worthwhile to release new titles for an unfamiliar platform.

"Studios need critical mass. It's hard to justify new channels (for distributing) content if the subscriber base is small," said one entertainment industry source.