The Big Question: What is Apple up to, and are we on the verge of a new digital revolution?

Why is this in the news?

Steve Jobs, the man who brought the world the iPod, revolutionising the music industry and changing the consumer habits of tens of millions of people worldwide, took to a stage in San Francisco this week to announce the latest line of products from his company Apple. As well as unveiling a new generation of lower-priced, portable digital music players, he also disclosed that Apple was joining the scramble to deliver video over the internet.

There were two key announcements. The first was that Apple was to offer its customers movies for the first time available for download over the internet via its iTunes site and which can be watched on an iPod. The second, potentially more far-reaching announcement was the creation of a device, provisionally titled iTV, with a likely price tag of £160. This small, sleek box, still under development, was described by Jobs as the "missing piece" that will bring digital content - films, music, photographs, television programmes from the computer to the TV screen.

Has there been a breakthrough?

The new iPods will offer improved capacity to store music and video. The largest, the 80-gigabyte video iPod, will hold 20,000 songs (about 2,000 albums'-worth) or 100 hours of video, the equivalent of some 60 feature films. The screen will be bigger, measuring 2.5 ins, and of higher resolution - 640 x 480 - offering about double the picture quality and 60 per cent increased brightness. In response to complaints over short battery life, the 80-gigabyte player will require charging after 20 hours of continuous play.

But the headline-grabbing initiative was the movies. Apple has signed a deal with Disney, of which Jobs is a major shareholder and director, and its Hollywood studios Pixar, Touchstone and Miramax. Available in the US now, and from next year in the UK, will be 75 Disney stable films including Pirates of the Caribbean 2 and Cars, as well as a slew of classics.

Is the technology revolutionary?

The answer is no. Apple has built a reputation as a swift and effective follower of market trends - witness the phenomenal success of the iPod. But the digital video marketplace is already looking fiercely overcrowded.

MovieLink, co-owned by Sony, Paramount, Universal, MGM and Warner, has been offering downloadable movies since April. In the summer, CinemaNow, a joint venture between Microsoft and Blockbuster announced a 100-movie deal with another raft of studios. Only last week, Amazon, the world's largest on-line retailer revealed its own movie download service. There are dozens of other portable digital players competing against the iPod already on the market.

How will consumers benefit?

The industry reaction has been one of surprised disappointment. While welcoming the developments in the new iPods, critics have been quick to point out the shortage of film titles offered by Apple. However, one of the key issues is price. iTunes users will be able to download blockbusters on the day they are released on DVD, costing about £7 - half the cost of a hard copy, and even cheaper for an older title. The downloaded version will be restricted by software, which means it will be able to be played only on a small number of credited computers and iPods.

But there are also concerns over quality. According to Jobs, the films will be "near DVD" quality, although opponents say this is not good enough in a video world moving towards ever-higher definition. Then there is the question of speed. Apple claims a film will be downloadable on the average broadband connection in just 30 minutes, with viewers able to start watching after just a minute. But some have already said this could take up to an hour. Analysts also wonder whether Sky and NTL video-on-demand services are not what consumers really want.

Yet, for the hardcore naysayers, the fatal flaw in Apple's strategy is that people just will not watch a full-length feature film on a 2.5-inch screen, no matter how high quality it is. Also, they say the average commuting time of about 40 minutes does not lend itself to watching a 100-minute movie.

So what is Apple's strategy?

Despite the phenomenal success of the iPod, with 60 million sold over five years, which single-handedly reinvented Apple's finances, the company has been under growing pressure from its competitors. Looming ever larger on the horizon is the release of Microsoft's all-singing, all-dancing Zune, due for release in the United States possibly as early as November. iTunes is also facing a mounting challenge from the No 2 download site eMusic, scheduled to arrive soon in the UK and Europe. It offers a more comprehensive download service, critics say.

Then there is the ongoing erosion of the value of the iPod brand as it becomes more popular. The pressure has been on Apple to do something to act and this, say analysts, is their response. The company sees its real future in digital convergence - a secret they hope will be unlocked by the iTV box. Apple computers are in the study and den, explained Jobs. ITunes is on the Mac or PC, it is also in 70 per cent of new cars, as well, of course, as in your pocket. The iTV device will complete the circle by linking all that content, via wireless technology to "your big flat-screen TV", he said.

And the future?

Apple makes its money from selling new gadgets, not from content. This puts it on a collision course with the studios ,and it has yet to bring any of them outside the Apple family on board. The company counters by pointing out that after a slow start, it has convinced the networks to add 220 television shows to iTunes. But unlike with music, video is harder to download and infinitely harder to watch on a tiny screen. It is also considerably more expensive and less portable.

Existing patterns of consumer behaviour simply do not lend themselves to movie watching on the go. However, this may not be as important as some fear. Video internet sites such as YouTube, which has enjoyed 2,291 per cent growth in the past 12 months, as well as new services from Google and Yahoo!, specialise in short clips - many of them homemade. Some believe consumers may not be looking for the highest production values when they fire up their iPods. Steve Jobs may be relying on it.

Will new movie download technology change viewing habits?

Yes...

* Apple is one of the most exciting and innovative companies in the world - where it leads, consumers follow

* The world has been waiting for the 'missing piece' linking the computer to the TV screen. This is now set to become a reality

* With technology at the tipping point, the TV studios and networks are finally ready to deliver content on-line.

No...

* Everyone who has tried to achieve the link between computer and television has failed

* Downloading video is still time-consuming, and watching it is tied to large screens

* Consumers will always demand a hard copy of a film or album to put on their shelves