Philip Schiller, Apple's senior vice president of product marketing, said the company had encountered other formidable competitors, including Yahoo Inc. and Sony Corp. "We're too focused on the work that we do to feel worried," he said.
Five years ago, though, Sony miscalculated Microsoft's potential in new markets and its willingness to lose billions of dollars as it builds a customer base.
Sony's PlayStation 2 video game console owned half the market when Microsoft thrust its Xbox into an industry in which it had no experience. Xbox 360 is now the industry leader in next-generation consoles, and Sony is trying to get its entry, the much-delayed PlayStation 3, on shelves in time for Christmas.
The same two engineers behind Xbox -- J Allard and Robbie Bach -- are in charge of Zune. And the market is still young. Only about 21% of Americans own a digital music player, according to market researcher NPD Group.
"Robbie's team is the strongest team at Microsoft," Baker said.
In the short term, at least, analysts are betting on Apple. The Cupertino, Calif., company has managed to keep competitors off balance through rapid innovation -- even going so far as to discontinue its most popular iPod, the mini, last September and replace it with the more slender nano.
The latest announcements from Apple are no exception. The company has shrunk its gum-stick-sized shuffle MP3 music player, which has sold 10 million units, to the size of a matchbook to make it the smallest product on the market. The new version of its compact nano music player is 40% smaller with twice the storage capacity.
Apple is also revamping its iTunes online music store. The new movie offerings, along with the already available TV shows, will be presented in the same resolution displayed by most televisions, rather than the lower resolution of iPods.
The Times reported on Apple's movie download service last week. Other companies -- including Amazon.com Inc.'s Unbox, CinemaNow Inc., Movielink and Time Warner's AOL -- operate online video stores that enable computer users to rent or download movies. CinemaNow even allows burning some films to DVD.
By contrast, Apple's new movie download service offers more limited content, launching immediately with 75 movies from Walt Disney Pictures, Pixar Animation Studios, Touchstone Pictures and Miramax Films.
