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Dell Targets Consumers With TVs, Digital Music

September 26, 2003|Terril Yue Jones | Times Staff Writer

Broadening its reach into consumer electronics, computer maker Dell Inc. on Thursday said it planned to launch an online music service and start selling digital music players and flat-panel television sets.

In addition to increasing pressure on traditional rivals such as Apple Computer Co. and Gateway Inc., Dell's move would put it in more direct competition with companies such as Sony Corp. and Samsung. It also signals the growing integration of PCs and other home entertainment devices.

"By introducing high-performing consumer electronics products that closely integrate with the computer, we are delivering what is most important to consumers -- content and experience -- at a better value than they're currently getting," Dell Chief Executive Michael Dell said.

Analysts said Dell could expand into other areas of digital entertainment as well, such as still and video cameras, even though the consumer electronics business has notoriously low margins. The Round Rock, Texas-based firm has never been renowned as a product innovator, but it excels at streamlined manufacturing and is known for tapping markets only when it believes they are profitable.

"It clearly shows the importance of digital products in the consumer lifestyle, and that Dell wants to be there," said Michael Gartenberg, director of research at Jupiter Research.

Dell would not discuss pricing or launch dates for any of the new offerings, but said they would be rolled out by the holiday shopping season. Executives also would not say whether the music service would be subscription-based or a pay-as-you-go system, like Apple's iTunes Music Store, which charges 99 cents for each downloaded song.

Sources said Dell planned to build its music store around technology from San Diego-based MusicMatch Corp., a longtime partner whose music-playing software is bundled with Dell computers. MusicMatch is expected to release a new version of its software later this year that adds the ability to buy downloadable songs.

MusicMatch President Peter D. Csathy wouldn't confirm the reports, saying only that his company has a long and healthy relationship with Dell. Executives have said that their store would be deeply integrated into the MusicMatch player, enabling users to do such things as buying the songs played on MusicMatch's online radio stations.

Several big-name brands are expected to launch downloadable music stores in the next six months, so Dell may have to compete with Amazon.com, Microsoft Corp., Roxio Inc.'s Napster, AOL Time Warner Inc.'s America Online and Yahoo Inc. BuyMusic Inc. already has launched and heavily promoted its online store, and Apple is expected to extend its store by the end of the year to people using Windows-based PCs.

"Gateway and Apple stand to lose the most, since much of their recent momentum has hinged on similar offerings," Joel Wagonfeld, a technology analyst with Banc of America Securities, wrote in a research note.

Gateway Chief Executive Ted Waitt said he was neither surprised nor worried about Dell's jumping into consumer electronics. Poway, Calif.-based Gateway has pinned its hopes of returning to profitability on a line of consumer products that include flat-panel TVs. "Dell's entry into consumer electronics validates our strategy," he said. "We knew we wouldn't have this space for ourselves forever."

Apple dismissed Dell's move. "There is little original here," the Cupertino, Calif.-based company said in a statement.

Dell shares rose 2 cents to $33.92 on Nasdaq.

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Times staff writer Jon Healey contributed to this report.

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