Apple Buffs Up iPod

The company's newest update brings the iPhone touchscreen to a new model.
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Updated from 2:24 p.m. EDT

SAN FRANCISCO -- Not surprisingly, the rumor mill got it right.

Following a week of fevered speculation,

Apple

(AAPL) - Get Report

took the wraps off a new design for its omnipresent iPod music player at an event here Wednesday.

Talk of an update for the iPod line has buzzed for days through gadget-focused Web sites, Apple-centric blogs and the mainstream media. The resulting chatter identified most of the new features unveiled by Apple CEO Steve Jobs.

The latest version of the 6-year-old iPod refreshes every product in the line, including bringing the company's iPhone touchscreen technology to a new device, the iPod Touch, which will feature Wi-Fi and Web-browsing capabilities. The 8-gigabyte and 16-gigabyte models will sell for $299 and $399, respectively.

One thing not predicted by Apple-watchers, however, was the company's announecment that it would drop its 4-GB iPhone model and cut the price of its 8-GB device by $200 to $399.

Apple also has added a video display and new games to the company's iPod nano, while the company's original iPod "classic" model received a boost in storage, with the larger-capacity player now holding 160 GB of storage -- the equivalent of about 40,000 songs. It will retail for $350.

Jobs also announced a new ringtone feature for the company's iTunes music store, allowing users to custom-make ringtones from available songs for 99 cents each.

In a typical sell-the-news reaction on Apple product announcement days, the company's stock was recently off $4.75, or 3.3%, to $139.41.

The new device comes to market as strains have emerged in the iPod franchise. The torrid growth in sales has cooled considerably in recent quarters. The iPod now competes not only with rival music players and cell phones, but also with Apple's newest franchise, the iPhone.

And last week, Apple parted ways with

General Electric's

(GE) - Get Report

NBC unit, whose shows like

Scrubs

and

Heroes

account for roughly 30% of video revenue on iTunes.

What's more, Wednesday's event showed how difficult it is to continue innovating on the same device. Most of the iPod's new features are already available on other products from Apple or its competitors.

The touchscreen technology, for example, came directly from labs that developed Apple's iPhone. Also, the iPhone uses Wi-Fi to connect wirelessly to the Internet, though it cannot download songs this way. The Zune, a digital music device from

Microsoft

(MSFT) - Get Report

, has Wi-Fi capabilities to let users exchange music files.

While allowing for a wider screen, the somewhat stubby shape breaks with Apple's tradition of sleek designs.

It's uncertain how far the iPod's new features will go in reversing the slowdown in sales. Consumers bought only 21% more iPods in the third quarter of this year compared to the same time last year. That's down from 32% a year earlier. And the revenue Apple collects from selling iPods grew only 5%, down from 36% last year.

Some of the slowing may reflect a nearly saturated market. It may only get worse if the iPhone cannibalizes iPod sales.

The iPod will nevertheless remain a staple of consumer entertainment for years, if not decades. But it's unlikely to remain an engine of sales and profit growth for as long.

With that in mind, investors have been looking to the way Apple has managed its iPod as a roadmap for how the company will bring its iPhone to the mass market. Since the iPod debuted in 2001, Apple has come out with a range of iPods that vary in size and features and are priced for the affluent as well as the mainstream consumer.

Now, investors are wondering if Apple will follow the same process in bringing its iPhone to the mass market.