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Does Sony finally have an iTunes answer?

As it reportedly prepares another challenge to iTunes' video offering, observers say the company has many tools needed to launch an offensive against Apple.

To Sony, the weak spot in Apple's iTunes fortress could be in video downloads.

Sony is preparing to launch a challenge to iTunes' video service, according to a story published Tuesday in the The Wall Street Journal. The Journal reported that Sony's effort would employ the PlayStation 3, the PlayStation Portable and Bravia high-definition televisions to offer some kind of download service.

The story, which, coincidentally or not, appeared the day before Apple has scheduled a major product launch, should provide grist for Sony bashers who can't wait to see the once-mighty Japanese electronics giant botch another effort to compete with Apple's iTunes juggernaut.

Skeptics would have a point. This is hardly the first time Sony has discussed a new digital download effort. Last week, the company finally buried Connect, its online music service that was doomed by infighting and buggy software. As for hardware, the PlayStation Portable, or PSP, could have run away with the mobile-video market. When it launched in 2005, it featured good storage and a larger screen than the iPod, but consumers were turned off by Sony's preoccupation with digital rights management and proprietary video discs.

"Unless the company can find a new approach, something that moves the ball forward, I don't see how this latest video effort is going to go in Sony's favor."
--James McQuivey, analyst, Forrester Research

"The PSP had a shot to define the mobile market, and that opportunity has now passed," said James McQuivey, an analyst with Forrester Research. "Unless the company can find a new approach, something that moves the ball forward, I don't see how this latest video effort is going to go in Sony's favor."

But before pundits ignore the latest nuggets of Sony news in order to focus on Wednesday's Apple product launch (which most observers expect to be the unveiling of new and improved iPods), they would do well to consider this: although Sony's execution in recent years may have been abysmal, it does have many of the tools to launch an offensive against Apple.

Sony could conceivably integrate Internet video across the PSP, the PS3 and Bravia high-definition TVs. The company owns Sony Pictures, one of the top motion picture studios, which could provide video customers plenty of content. In addition, that studio connection is now all the more attractive as it appears Apple's relationship with Hollywood is shakier than ever. Last week, NBC Universal announced that it wouldn't be renewing its long-term contract with iTunes.

Right now, Sony is trying to work the kinks out of the PS3 and PSP. When the company first introduced the PSP, it didn't allow users to connect to their TV sets, which prevented them from playing games or watching PSP videos on a big screen.

That problem has been eliminated as part of recent upgrades to the device.

Sony has also enabled the PS3 to record content that can be transferred to the PSP and confirmed that a video download store for the PSP is on its way. Last week, Sony upgraded the Walkman digital music player--which thus far has failed to dent iPod's lead--so owners can watch music videos and movie trailers on the device.

One of the biggest challenges confronting Sony, of course, is how it will bind a video game machine, portable device and TV set into a cohesive video offering.

"The problem Sony faces is that very few homes will have enough of those devices to build allegiance to Sony," McQuivey said. "The relationship with the customers is going to be fractured. The gamers are going to be in one place, and the Bravia owners in still another. Bringing them together and building loyalty will be a challenge, especially considering that early adopters have had exposure to iTunes for some time now."

But how important is it for Sony to catch Apple in the video market? While Apple is No. 1 in video downloads, revenue for the sector is worth about $300 million right now, McQuivey said. Of that amount, Apple likely generated about $200 million, he said. While the market is sure to get much bigger, just how much bigger is anyone's guess.

Nobody knows whether it's more profitable to offer pay-per-view content or give it away and support a video service through advertising. Plenty of TV networks have begun offering clips of shows on their own Web sites but attach ads. If this practice becomes widespread, it could undercut Apple's offering.

It seems apparent that music will remain Apple's bread and butter for a long time to come, and revenue from video sales represents only a tiny part of Apple's revenue.

And believe it or not, some people are still rooting for Sony. Chris Cardone, for example, an anesthesiologist from Cincinnati, is an avid iPod video viewer, or at least he was before he got his hands on the iPhone's bigger screen. He thinks consumers can only benefit from more competitors joining the video sector.

"I would prefer that there's competition," Cardone said. "At iTunes, I don't mind paying $1.99 for a show without ads. It's more efficient and takes up less storage, but maybe Sony or someone else can appeal to customers who might see price as a priority. I wouldn't mind having more than one choice."