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Monday, May 23, 2005, 12:00 pm PT (03:00 pm ET)

Apple could help music industry cash in on music videos

With Apple Computer's new iTunes software adding support for digital music videos, the company could work with the music industry to deliver a profitable outlet for the clips, says one Wall Street analyst.

According to Merrill Lynch's Steve Milunovich, the music industry would likely cooperate with Apple in the sale of music videos, which are often costly to produce but offer very little direct monetary return.

As far as Netflix is concerned, Apple has its sights set on some form of video service, the analyst also noted. The online video rental service recently said Apple has designs on subscription video of some kind, as evidenced by its recent hiring and lease of space.

Concerns about how Apple will follow up the iTunes video integration seem premature, Milunovich said. He also thinks selling videos may be a precursor to a video iPod.

Meanwhile, Merrill Lynch is cautious of today's Wall Street Journal piece, which suggests Apple and Intel are in talks over Apple possibly adopting Intel processors in its Mac product line.

"What is the benefit to Apple and consumers?," Milunovich wrote in a research report released today. "One might be in notebooks, where Apple has said that heat dissipation makes it difficult to put a G5 into a laptop. Still, we’d be surprised to see a wholesale switchover to Intel processors with Mac momentum finally kicking in."

On a separate subject, Merrill Lynch said that Best Buy is experiencing little success selling Apple's new Mac mini desktop.

"Store managers told us that PC users are reluctant to make the switch to Mac and are opting for low cost PCs like eMachines," the firm said. "Some store associates said they are at a disadvantage with Macs because Best Buys don’t carry software for Apple."

Still, Mac mini sales appear solid at Apple stores, the firm said.

Merrill Lynch rates Apple a "Buy" with a price objective of $51 a share.