Apple's Couch-Potato Conundrum

"Right now, it's a compromise," he says.

That compromise might be acceptable to some people, but Apple has plenty of competitors who could offer something better. Who needs to pay $2 for a 10-minute download of a low resolution version of Lost when you can just key up your DVR (or even a humble VCR) to record it for free at a higher resolution? And why buy a low-resolution episode of Desperate Housewives from last season when you can get the whole series plus extras in full resolution on DVD?

"That's the competition for this," says Kay. "In that sense, the risk is that the experience is little bit disappointing on the resolution side of things."

Apple's advantage, Kay and others note, is that its videos are pre-formatted for their new iPods; consumers won't have to manipulate the video to downsize it for a portable device. But the key market for digital video is the home, not kids in the back of a minivan or jet-setters looking for something to do on a cross-country commute.

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