Apple Closer to the Living Room

Updated from 3:56 p.m. EDT

SAN FRANCISCO -- Apple Computer ( AAPL) is finally heading into the living room -- or at least it aims to by the beginning of the year.

Beginning in January, Apple plans to offer a new device, code-named iTV, that will allow users to easily watch and listen to digital media -- movies, songs, photos -- on their home entertainment systems.

Although the company has clearly been moving in that direction for a while, the new device marks the first time Apple will offer a product specifically targeted at the so-called digital living room.

"We hope this gives you a little bit of an idea of where we're going to," company CEO Steve Jobs said at a media event here Tuesday. "We think it completes the picture."

The iTV device was the only real surprise at the event, and it wasn't enough to thrill investors. Instead, Apple's stock closed regular trading up just 13 cents, or about 0.2%, to $72.63.

The rest of the event was filled with announcements that were either expected or relatively modest, or both.

For instance, confirming rumors that have been bubbling for months, Jobs announced that Apple will start selling movie downloads. But the company is launching the service with the support of just one of the major studios, Walt Disney ( DIS), on whose board Jobs sits.

Even with the support, Apple will have little more than 75 movies available for download at first.

At the event, Jobs compared the launch of the movie service with the initiation last year of a related service that allows customers to download television shows. That service also began with the support of just Disney and only five shows.

Apple now offers 220 shows from all the major networks.

"We'll be adding more movies every week and every month," Jobs said.

Still, the lack of support from other studios at the launch of the movie service was a disappointment, especially given that ( AMZN) launched a rival service last week with support from five of the top six movie companies. Amazon, it should be added, does not yet offer downloads of Disney movies.

Jobs also unveiled updates to each of the company's three lines of iPod music players. But the updates were relatively sedate compared with rumors that have been bandied about concerning what the company has in the works.

In other words, Apple didn't announce a new music-playing cell phone, didn't introduce a full-screen iPod and didn't introduce a model with built-in wireless networking.

Instead, the company increased the storage on some models, cut prices on some, added colored cases to its nano line and tweaked the iPod's underlying software.

But that was tame compared with similar events in the company's recent past. At a media event last year, for instance, Jobs announced that Apple was killing off the iPod mini, its most popular MP3 player at the time, and replacing it with the iPod nano.

That gambit paid off, with Apple selling millions of nanos over the holiday season last year, and the device quickly became the company's newest best-selling model.

To be sure, the company may feel no real need for radical changes right now. As Jobs mentioned in the presentation, sales of the company's iPods comprise 75.6% of the U.S. market for MP3 players, and sales of songs through iTunes make up 88% of the legal music download market.

Additionally, Jobs offered little in the way of an update on what could be one of the most crucial problems facing Apple: its probe into past stock-option "irregularities."

In an interview with CNBC that was broadcast after the event, Jobs said that the company's options practices are not under investigation by the Securities and Exchange Commission or other regulators and that the company should complete its internal probe into the matter "in the not too terribly distant future."

"We're focused on our own house right now," Jobs told CNBC, marking the first time he's talked about it in person and the first time the company has discussed it in about a month. "We are letting our investigation have its due course."

But Jobs offered no new details on what the investigation, which Apple launched at the end of June, has found. Moreover, he did not respond to questions about the investigation shouted at him while he milled about with guests after the media event.

Specifically, Jobs declined to comment on whether the company backdated its options or what the "irregularities" were, or whether he personally was responsible for the "irregularities."

Apple has previously said that it found numerous problems with its past grants, including at least one given to Jobs. As a result, the company has delayed filing its latest quarterly report and has warned that it plans to restate reports from previous quarters and years.

Some analysts and investors are worried that Jobs could be implicated in the trouble and, if so, could be forced from the company.

Apple last updated investors on its probe last month when it filed a document with the SEC warning that it would not post its third-quarter report on time.

Apple spokesman Steve Dowling also declined to comment further on the status of the company's options probe.

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