Downloads Will Intensify Shine on Apple

This column was originally published on RealMoney on Jan. 13 at 2 p.m. EST. It's being republished as a bonus for TheStreet.com readers.

For nearly three years, I've been writing that there are so many ways to win with Apple (AAPL Quote) and that iTunes will displace Wal-Mart(WMT Quote) as the largest retailer of music on the planet. It looks like this will happen before the end of 2006. While Wall Street's having a cow over Apple's recent 20% top-line upside preannouncement and the news that it shipped 14 million iPods, the real story for Apple is truly, simply, digital downloads.

Eight million video downloads. Three million song downloads a day. Those are the two numbers my mind keeps ricocheting back to. Let's "roll the video" first. Eight million video downloads in the first couple of months they were offered, as the video iPod was just being rolled out. Eight million video downloads, despite the fact that there's hardly any video content available yet on iTunes.

Let's put that number in context. TBS, the cable channel with the biggest audience, averages about 2.5 million viewers a night. A top 10 network television show can grab 15 million viewers an episode. Nearly 60 million people tune in to watch "SpongeBob SquarePants" every week. There are about 110 million households with televisions in the U.S. DVD sales and rentals totaled more than $6 billion in 2005.

What does all this mean? Apple's just barely begun offering video downloads. It's maybe sold 5 million video-enabled iPods thus far. So what happens when Apple's video iPod hits critical mass? Say, when 10 million people have a video iPod? And what happens when Apple offers enough video content on iTunes that it hits critical mass? Say, 5,000 different shows and movies? And what happens when Apple's hardware fully integrates into your living room home theater system?

Do you see where all this is headed? The three won't work together incrementally. We're looking at exponential growth. And strategically for Apple, we're looking at de facto standardization around its video platform. Oh my.

To view Cody Willard's video take of this column, click here.