“The continued economic turmoil, and in particular the troubling unemployment rate, is undoubtedly impacting industry sales,” said NPD analyst Anita Frazier. “Our latest Economy Tracker indicated that although consumers’ general opinion about the economy is improving, their outlook on their own personal situation is worsening. If consumers’ personal outlook continues to erode, they could very well be much more conservative with their holiday shopping this year.”

A somber warning for the videogame industry. Even recent price cuts on game consoles have done little to spur demand.

“Year to date, the hardware category has experienced the sharpest decline in the industry, with unit sales down 10 percent compared to the same time period last year,” Frazier wrote. “Recent price cuts helped spur a one- to two-month increase in unit sales, and this month’s Wii sales reflect that boost, but the other platforms have not sustained the sales momentum after price reduction.”

The videogame industry may be recession-resistant, but it is clearly not recession-proof, as some once believed. Sales data, below.

U.S. Hardware Sales, October 2009

1. Wii 506.9K
2. Nintendo DS 457.6K
3. PlayStation 3 320.6K
4. Xbox 360 249.7K
5. PSP 174.6K
6. PlayStation 2 117.8K

U.S. Top Ten Software Sales, October 2009

1. Uncharted 2: Among Thieves (PS3, Sony) 537,000
2. Wii Fit Plus (Wii, Nintendo) 441,000
3. Borderlands (360, Take 2) 418,000
4. Wii Sports Resort (Wii, Nintendo) 314,000
5. NBA 2K10 (360, Take 2) 311,000
6. Halo 3: ODST (360, Microsoft) 271,000
7. NBA 2K10 (PS3, Take 2) 213,000
8. Forza Motorsport 3 (360, Microsoft) 175,000
9. Kingdom Hearts 358/2 Days (DS, Square Enix) 169,000
10. FIFA Soccer 10 (360, Electronic Arts) 156,000

“EA is performing well, with quality, sales and segment share up so far this year,” EA CEO John Riccitiello said in a statement. “We are making tough calls to cut costs in targeted areas and investing more in our biggest games and digital businesses.”

Under terms of the deal, EA (ERTS) will initially pay $300 million for the developer of such social games as Pet Society, Who Has the Biggest Brain and Restaurant City, including a $25 million retention agreement with Playfish employees. It will subsequently pay $100 million more if the company meets undisclosed profit targets.

By acquiring Playfish, EA is not only validating the social gaming market, but perhaps setting the valuation benchmark for Mafia Wars creators Zynga, which is expected to go public next year. It also tempers–to some extent, anyway–concerns that the lead-generation scam controversy that recently blew up around Zynga and Playfish might harm their perceived value in the market.

“This deal came about very quickly, but let me say that Playfish was never ‘up for sale’,” de Halleux told PaidContent. “We were focused on building our business, because we believed—and still do—that the game industry is changing. EA approached, and we realized that we could be in a better position to act as an agent of change, through them. We could build games and attract users on our own, but this deal accelerates that to a degree that wouldn’t have been possible.”

“Social gaming, with its emphasis on friends and community, is seeing tremendous growth and this is the right time to invest to strengthen our participation in this space,” said Barry Cottle, senior vice president and general manager of EA Interactive. “With the addition of proven expertise from Playfish, their broad consumer base and strong game brands, we’re moving ahead aggressively in our plans to lead in the category of cross-platform social entertainment.”

If there was ever a doubt that social networks might be a viable gaming platform, this acquisition pretty much obliterates it.

That’s what ngmoco co-founder and Electronic Arts (ERTS) alum Neil Young said of Apple’s iconic handset at the Game Developers Conference in San Francisco earlier this year, and it’s worth reflecting on a bit in light of a new report from Bernstein Research analyst Toni Sacconaghi that claims the iPhone OS will soon create pricing and customer migration pressure for traditional gaming platforms.

Noting that some 665-760 million games may have been downloaded from the Apple (AAPL) App Store during the last 12 months, Sacconaghi estimates that the installed base for the iPhone and iPod touch platform could amount to about one third of the total handheld gaming installed base by 2012.

“We believe that gaming embodies the power of Apple’s App store: it has dramatically lowered the entry barriers for both developers and gamers alike, resulting in an unparalleled number of available games at affordable prices, which is creating lock-in and enhanced interest in Apple’s high-margin iPhone (and iPod Touch) platforms,” Sacconaghi writes.

Continuing, the analyst adds: “By most measures, gaming has been the killer App Store category, accounting for an estimated 40% of all downloads. Most importantly, we believe that gaming is providing yet another incremental, differentiated reason for consumers to purchase iPhones and iPod Touches, and creates powerful lock-in to the App Store platform and Apple products on a go forward basis.”

The upshot of all this is bad news for traditional gaming console developers–particularly those who have dismissed it as a novelty. “Most gaming developers today view the iPhone and other smart phones as an incremental opportunity, which targets the casual gamer but not the dedicating gaming enthusiast,” Sacconaghi explains. “Over time, however, we believe that the combination of evolutionary improvements in iPhone/iPod gaming functionality, the convenience of the App Store download model, the App’s Store leading title selection and lower price points could cause some migration among gaming enthusiasts to the Apple platform and/or pressure traditional gaming incumbents’ hardware and software pricing.”

And this is clearly what Apple (AAPL) is aiming for. Consider these recent remarks from Phil Schiller, the company’s senior vice president of worldwide product marketing: “People are starting to see what a great gaming device this is. When you think about the companies that came before us…when you played those other systems, they seemed so cool, but now when you look at them, they don’t stack up against the iPod touch….No Multi-Touch user experience, Games are expensive, No App Store, No iPod, Expensive Games ($25-$40) and uncomfortable retail buying experience. [There are] 607 games for PSP and 3,680 games for Nintendo DS. [But there are ] 21,178 Game and Entertainment Titles at App Store.”

In fact, it could be argued that public confirmation of Jobs’s health since his return to the company was truly the most significant announcement of the day. As Morgan Keegan analyst Tavis McCourt quipped in a research note issued after the event, “Aside from a lack of a camera on the iPod Touch, everything announced was generally in line with expectations, although it all tends to sound much more revolutionary when Steve Jobs is spinning the story. It was clearly a positive to see him back on stage.”

Piper Jaffray analyst Gene Munster felt similarly: “There was some debate over whether Steve Jobs would deliver the presentation at [the] event,” he said in a note to clients. “He did, and we see this as a sign that he has returned to work at near-full capacity following his health-related leave of absence. We continue to believe he is the primary spokesman and active leader of Apple.”

Munster went on to note that the event was otherwise a bit of a disappointment. Certainly, the lack of a new iPod touch with a built-in video camera, which was viewed by many as almost a sure thing, was a bit of a letdown.

“We were expecting a new iPod touch model with a video camera, which Apple did not announce,” Munster said. “The lack of a camera may be due to last-minute quality issues, or it may also be a strategic decision to differentiate the nano from the touch, and the touch from the iPhone. Ultimately we see the lack of a camera in the touch as a move to push users toward the iPhone and drive purchases of multiple devices per customer by segmenting the product lines.”

Or to position the iPod touch as a truly competitive portable gaming device. Certainly, that’s what appeared to be going on yesterday as Apple (AAPL) brought out Ubisoft, Tapulous, Gameloft, and Electronic Arts (ERTS) in quick succession to demo their upcoming new games. And then, there were the data points. Consider these:

• 20 million iPod touches sold to date
• Over 100 million iTunes accounts
• Over 1.8 billion apps downloaded to date. Impressive given that Apple passed one billion apps downloaded just last April
• Over 75,000 apps available
• 21,000 of those 75,000 are games and entertainment apps

So nearly one third of all iPhone OS apps sold to date are games and entertainment apps. Clearly, Jobs was on to something when he told The Wall Street Journal in November 2008, “I think the iPhone and iPod touch may emerge as really viable devices in the mobile games market.”

Apple has sold some 225 million iPods to date, making it one of the most popular electronic devices ever. And it’s sure to sell even more after the updates the company announced at this morning’s event. Among them: Larger, cheaper iPod touches and nanos with cameras and FM radios.

Following introductory remarks by Apple (AAPL) CEO Steve Jobs, Phil Schiller offers details, noting that “the iPod has 73.8 percent market share. The next biggest category is ‘other,’ and after that, SanDisk and then Microsoft pulling up the rear.”

Schiller adds that Apple has sold 20 million iPod touches since the device debuted. He runs through a lengthy sales pitch for the iPod touch, touting it as a killer pocket computer and taking potshots at rivals like Dell (DELL) along the way.

Moving on to games, Schiller notes the discrepancy between the number of games on gaming platforms like the Nintendo DS and the iPod touch. The iPhone OS, he notes, has 21,178 games. The DS has just 3,680. Point taken.

Moving on to some new game demos now. First up: Ubisoft with Assassin’s Creed 2, which, we are told, is “all about visceral combat, brutal hand-to-hand combat and one-shot kills.” Behind the presenter, a warrior is mercilessly beaten into submission.

Schiller returns to the stage, “Boy, that looks like fun.”

Tapulous, the developer of Tap Tap Revenge, and Gameloft, follow, both introducing new games. Gameloft’s Nova–a first-person shooter with multiplayer option–seems a far more compelling effort than Tapulous’s Riddim Ribbon, which appears to be a Black Eyed Peas-heavy variation of Tap-Tap.

Up next, Electronic Arts, which is apparently headlining the games section of today’s event. EA’s Travis Boatman takes the stage to introduce Madden NFL 10. The game boasts both custom-kick and draw-a-play-on-screen features developed specifically for the iPhone OS. Madden NFL 10 is available today.

Schiller again returns to the stage. “The iPod touch is the most affordable gateway to the App Store,” he says, adding that $199 is a “magic price point” in the iPod market.

With that, he announces the iPod touch price cuts we heard about earlier this morning: An 8GB model for $199, 32GB for $299, and 64GB for $399. All three devices are significantly faster, says Schiller. Interestingly, none seem to feature that rumored camera.

Price drops as well for the nano, but we knew about these. Apple has dropped the price of the iPod shuffle as well: $59 and $79. And the company is offering them in a new selection of colors. Plus, there’s a special edition of the shuffle crafted from stainless steel.

Steve Jobs returns to the stage. So those are the iPods, but there is one more thing: A video camera. He talks about the exploding video market, mentions the Flip, etc. “We want to get in on this market as well and we’re doing it for free….Boy, this really is the new Apple,” he quips.

Yes, the iPod nano does indeed now feature a video camera. The video quality looks impressive. Whoa: Apple has also added FM radio, a voice recorder and a pedometer to the nano. New polished anodized aluminum colors. 8GB model for $149, 16GB model for $179.

After a few concluding remarks about the new iPod lineup, Jobs announces what has become an annual tradition at these events: A live performance. Today’s artist: Norah Jones.

The end of her set concludes today’s event. No iPlatform. No Beatles on iTunes. But lots of product refreshes, software intros, and price cuts. Plus: Steve Jobs is definitely back.

Live from Apple’s “Let’s Rock” Event

• iPod Updates, Games, Nano Video Cameras
• iTunes 9, iTunes LP, Home Sharing, Genius Mixes
• Steve Jobs: “I’m Vertical, Back at Apple and Loving Every Day of It”
• Event Photos by Adam Tow

That breathless and swooning introduction aside, ngmoco co-founder Neil Young’s keynote address at the Game Developers Conference in San Francisco today was noteworthy in that it really heralds the arrival of the iPhone as a gaming platform. The GDC is the largest annual gathering of professional videogame developers, so the fact that Young, an Electronic Arts (ERTS) alum turned iPhone developer, delivered his remarks from a stage that will soon host Nintendo president Satoru Iwata and Metal Gear creator Hideo Kojima says a lot about the esteem in which game developers hold the device–dismissive comments from Sony (SNE) be damned.

Apple’s (AAPL) iPhone is still in its early stages as a gaming platform and make no mistake, it is a viable gaming platform, said Young. And he should know; ngmoco–the developer of popular iPhone game titles like Rolando, Dropship, and Topple–just closed a $10 million second-round of funding after only nine months in business.

“Don’t let the haters tell you it sucks compared to the [Nintendo] DS or the [Sony] PSP,” Young said of the iPhone. “It doesn’t. It’s good. It’s clear that the quality of iPhone games is eclipsing its console counterparts, and that’s even more acute when you compare it against the prior generation.” Why?

Unlike its console rivals, the iPhone is always connected, users always carry it, it offers unique features that can’t be found anywhere else–a touchscreen, an accelerometer, connectivity. In this way, said Young, the iPhone is similar to the Nintendo DS. When that device first launched, many thought it would be beaten into whimpering submission by the far more robust PSP. But that never happened. “Nintendo was able to win that battle by combining great software with hardware that it understood very well,” Young said. “If Nintendo made the iPhone, what would they focus on? I think they would build games that could only be on the iPhone. The designs would be progressive, discontinuous, and would have the user and the user’s context always in mind. They would have great underlying game design with native device functionality at the core.”

His point: Graphics and sound alone don’t necessarily make a great app. As Nintendo has shown us with the DS and the Wii, gaming is all about the platform. And Apple has clearly created one to be reckoned with.

Indeed, just this morning, Heard on the Street’s Martin Peers suggested EA would be a good acquisition, particularly for an entertainment company. “Any entertainment company could be interested in EA, given continued growth in videogame sales, the potential for cross-fertilization with TV and film storylines and advertisers’ interest in buying space in games,” Peers wrote. “Disney makes the most sense. EA’s biggest assets include its sports games, such as ‘Madden NFL,’ which would fit with Disney’s ESPN cable network. Disney could also save at least part of the roughly $200 million it spends annually to develop its own games.”

An interesting theory. Ironic too, since before EA was in the news for its current ill fortune, it was making headlines for its dogged pursuit of Take-Two Interactive. That said, with only $2.6 billion in cash on its books, Disney would have to borrow quite a bit to push such a deal through, which seems unlikely in the current market.

The company didn’t say exactly what prompted it to end talks with its smaller rival, though presumably it had something to do with Take-Two’s bashing of EA’s $25.74-per-share bid as too low and the company’s acquisition strategy as “mystifying.”

“This was never a must-have proposition, but we respect their people and products,” Owen Mahoney, senior vice president of corporate development at EA told The Wall Street Journal. “We don’t need Take-Two to make EA successful.”

Hence, EA’s repeated extensions and revisions of its offer. …

Anyway, this may not be the last we’ve heard of a deal. There’s still a chance that EA might return to the table. “If Take-Two’s stock price settles back into the teens, we could see them come back again in a few months,” said Michael Pachter, an analyst with Wedbush Morgan Securities. “They walked away, but that doesn’t mean they won’t look at it again.”

Take-Two shares plunged 22 percent in pre-market trading on the news.

And then it lowered its bid to $25.74 a share, from $26.

EA (ERTS) did this because last night, Take-Two (TTWO) shareholders approved the issuance of 1.5 million new shares to the company’s management firm, ZelnickMedia–shares that EA claims dilute the value of its buyout offer. A reasonable argument to be sure. But lowering the price of an offer that Take-Two already claims undervalues it clearly isn’t going to advance EA’s cause.

And at this point, that cause needs all the help it can get. As of this writing, EA has gathered a little more than 8% of Take-Two’s shares. It needs 50% for its offer to succeed. And with Take-Two gearing up for the April 29 release of its eagerly anticipated “Grand Theft Auto IV”, it’s not likely to get much more at $25.74. Said Take-Two chairman Strauss Zelnick, “I’m mystified by EA’s strategy.“

We’re telling IT executives to not support it because Apple has no intentions of supporting (iPhone use in) the enterprise. This is basically a cellular iPod with some other capabilities and it’s important that it be recognized as such.”

–Gartner analyst Ken Dulaney, July 2, 2007

Today’s an important one for Apple (AAPL). The company is hosting a “town hall” meeting to discuss an iPhone software roadmap. Presumably, this event will see the release of more details about the eagerly anticipated iPhone SDK, but perhaps not the debut of the SDK itself. Certainly, that’s the impression given by the invitation to the event–”Please join us to learn about the iPhone software roadmap, including the iPhone SDK and some exciting new enterprise features.” Enterprise features? Ready to eat your words, Dulaney?

But whether the SDK is released to developers today or not, this event promises to be a watershed one. Because it heralds a vast new addressable software market for developers. After all, the iPhone and iPod touch run OS X, and presumably most future iPod models will as well. Which likely means that applications written for Mac in Xcode–Apple’s development toolset–will be deployable on any OS X device. They’ll be “write once, run anywhere”–anywhere there’s OS X, that is. And word on the street has it that we may see a few of them as early as today.

The event begins at 10 a.m. PT (1 p.m. ET). Updates to follow …

UPDATES:

• The event’s begun. You’ll find streaming video of the event here.
• The next iPhone software update will include support for Push Email, Push Calendar, Push Contacts, Global Address List, Cisco VPM, Certificates and WPA2/802.1x, Security Policies, Device Config, and Remote Wipe. Wow.
• Responding to customer demand for Microsoft Exchange on the iPhone, Apple has gone ahead and licensed ActiveSync for the device.
• Exchange will be native to the iPhone. Jobs must be muttering multiple “BOOMS” from backstage.
• Nike and Disney have been testing Exchange for iPhone and are pretty happy with it.
• Scott Forstall is now taking the stage to talk about the iPhone SDK. Apple giving developers the same tools and APIs it uses to develop iPhone apps.
• Apple took Cocoa and created Cocoa Touch, a new framework for building apps.
• The OS X kernel is the same for desktop and iPhone.
• Xcode has been expanded to support iPhone. It will code complete APIs for the iPhone SDK. (See? What’d I tell you: write once, run anywhere there’s OS X.)
• SDK includes Interface Builder and iPhone Simulator that allow developers to run their apps on their desktops. “It runs on a Mac and simulates the entire API stack on your computer,” Forstall says.
• Forstall builds a quick “Hello World” app, drops it on the iPhone and runs it. Quick and easy.
• “This is an app I just built in two minutes. But we wanted to see what we could build in two days. So we built Touch FX,” Forstall says. It’s an image editor that allows you to warp photos by pinching them.
• Forstall then demos Touch Fighter, a point-and-shoot game.
• Did I mention the SDK is available today? Good luck downloading it …
• Whoa. Travis Boatman from Electronic Arts takes the stage and demos an iPhone version of Spore. They’ve already ported 18 levels. (Hope SDK includes tool for building spare batteries.)
  

• Apple really pulling out all the stops on this one. Chuck Dietrich from Salesforce.com onstage now.
• Salesforce ported one of its automation tools to the iPhone, one that graphically displays how salespeople are performing against their goals.
• Next up: AOL. AIM for iPhone. Took five days to build.
• Larry Ellison takes the stage to announce Oracle Database 11g for iPhone.
• Kidding.
• Epocrates demo. Clinical reference app for doctors.
• Ethan Einhorn from Sega up next.
• Ha! Super MonkeyBall for iPhone. “This is not a cellphone game. This is a full console game. … We had to fly in a developer to upscale the art for the iPhone,” Einhorn says.
• Jobs back onstage. Announces the iTunes App Store. “You’re a developer who just spent two weeks or a bit longer writing an application. What’s your dream?” Jobs asks. “To get it in front of every iPhone user.”
• Apps can be downloaded wirelessly or sideloaded via iTunes. “This is the exclusive way to distribute iPhone applications,” Jobs says, adding: “We are controlling distribution.” (We will control the horizontal. We will control the vertical. You are about to participate in a great adventure. You are about to experience the awe and mystery which reaches from the inner mind to… The iTunes App Store.)
• Developers price their own apps and they get 70% of the revenues they generate. Apple takes 30% for running the App Store. ” … To be clear, we don’t intend to make money off the App Store. We’re basically giving all the money to the developers, and the 30% that pays for running the store, that’ll be great.”
• Apple plans to release an iPhone 2.0 software update in June that will include enterprise capabilities, App Store, etc.
• One more thing …
• Oh, look: It’s KPCB’s John Doerr. Must be here to demo i’MRich for iPhone.
• Doerr announces the iFund for iPhone developers.
• $100 million to start. Boom.BOOM. BOOM! “That should be enough to start about a dozen Amazons, or even four Googles! … If you want to invent the future, the iFund wants to help you build it,” Doerr says.
• END

(Spore photo courtesy Gizmodo)

Note: John Paczkowski live-blogged the following on his iPhone from Moscone Center West in San Francisco:

9:55 a.m.: Break out the Cupertino Kool-Aid: the show’s about to start.

Uh-oh. We’re being told turn off all electronic devices. Guess that means the laptop’s out. We’ll have to do this one on the iPhone. Not as bad an option as you’d think, since the device seems to autocorrect for all Apple-related misspellings.

10 a.m.: Well, this is a break from tradition: Apple CEO Steve Jobs saunters onstage decked out in full Sgt. Pepper regalia. Kidding, he’s wearing the jeans and black mock turtle ensemble for which he presumably holds the patent.

Jobs begins: “Today were going to talk about music. Six hundred million copies of iTunes. Billions of songs sold. Top store in 21 countries. No. 3 music retailer in U.S.” He continues: iTunes has “550 TV shows [with] 95 million TV shows sold to date.”
Of all music releases in 2006, he notes, 32% was digital only.

10:05: New on iTunes: Ring tones: Custom ring-tones maker built into iTunes. Typical ring-tone price is $2.49. Apple will charge 99 cents, plus cost of song. How it works: New column in iTunes. Bell logo indicates ring tone’s availability. Click and up pops a slick little editing tool. Jobs demonstrates editing process. Chooses Aretha Franklin’s “Respect.” “I’ll assign this to calls from my wife,” he says. Wonder if he’s made a rim-shot ring-tone yet.

10:08 a.m.: iMovie-like audio editing tool. Nice. Jobs playing “Gonna Make You Sweat.” Phil Schiller dancing in cage suspended from auditorium ceiling. Kidding. It’s Tim Cook. … Now, he’s playing “Give Peace a Chance.” “That’s for when NBC calls.” Ooh, snap. There will be 500,000 participating songs. Apple will turn ring tones tool on next week.

10:10 a.m.: Moving on to iPod: iPod sales “rather strong,” Jobs says. Apple replacing or refreshing every iPod model for holiday 2007, he adds. There’s more: Shuffle gets a basic refresh. New colors, 1 gigabyte. Same price.

10:13 a.m.: Nano most popular music player in history, Jobs reports. Customers want video on Nano. Nano gets video, brighter screen, cover flow, games. Then Jobs whips out chubby Nano. Holy crap. It’s incredibly thin. Five colors. Two-inch screen. Exact same screen as iPod video.

10:17 a.m.: New interface on this Nano. More intuitive. Quality looks great. Three games bundled with Nano. Apple has also partnered with Electronic Arts to bring games for sale on iTunes.

10:19 a.m.: EA game looks impressive.

10:20 a.m: Jobs demoing video: “I love Jon Stewart. Best place to get your news.” He calls up “Daily Show” episode where Stewart convinces John Hodgman to say “I’m a PC” on camera.

10:22 a.m.: There have been 25 million video podcasts on iTunes, Jobs says. Now, he’s demoing photo slide show on Nano. Again, pretty slick: 24 hours audio playback, five hours of video.

10:24 a.m.: Prices: 4 gigabytes, $149; 8 gigabytes, $199. Nano will start shipping today. In stores this weekend. “A little video for everyone,” Jobs declares.

10:25 a.m.: “We took redesigning this device very seriously,” Jobs says, “and we think we nailed it.”

10:27 a.m.: Moving on to iPod. “It’s time to give the iPod a name,” Jobs says, declaring it the “iPod Classic.” It has a full metal design. Much thinner. Eighty gigabytes of storage. What’s more, Jobs notes, iPod Classic will feature “all the user-interface tweaks you’ll find on Nano.”

10:28 a.m.: Whoa. Second model features 160 gigabytes–that’s storage for 40,000 songs in your pocket, Jobs says.

10:30 a.m.: The iPod Classic will be available this weekend as well, Jobs announces.

Then: “Not done yet.” He continues: “iPhone is best iPod ever.” Apple is bringing iPhone touch tech to new iPod, he says. It’s called iPod Touch. Same 8mm thin size. Same screen as iPhone. “We think it’s the eighth wonder of the world,” Jobs notes.

10:33 a.m.: Jobs keeps on listing: Multi-touch widescreen display. Photo support.

10:35 a.m.: “A revelation in how to enjoy music for the people who haven’t yet experienced the iPhone,” Jobs says of this new iPod.

10:37 a.m.: More features: Antenna in the back of device. Wi-Fi support. “We’ve succeeded in adding Wi-Fi where others have failed,” Jobs notes.

10:40 a.m.: Apple adding Safari browser to iPod Touch so users can use it to log in to those annoying Wi-Fi portal pages, Jobs continues. Full Google and Yahoo search capabilities. Plus: iPod Touch also features YouTube. Streamed over Wi-Fi.

On to the iPod Touch demo: Slide to unlock. User interface looks just like iPhone. Full onscreen controls cover flow in landscape mode. Jobs unhides Safari, YouTube icons on iPod screen. Still lots of empty screen space.

10:43 a.m.: Jobs makes 86th Bob Dylan reference of morning, browses Dylan’s Web site. Never realized this before, but Dylan looks quite a bit like Howard Stern on the cover of “Blood On The Tracks.” Now he’s surfing over to Facebook for iPhone. Status Update: “Steve is … about to announce an iPhone price cut.”

10:44 a.m.: Now he’s demoing YouTube. Oh, look. Haha funny hijinks. God, I love that Star Wars kid …

10:45 a.m.: “We’ve put Wi-Fi in and made it usable,” Jobs says. “It’s a worldwide product. Shipping to a number of countries beyond the states.”

10:47 a.m.: Screen is missing at least 10 buttons. Two models: 8 gigabytes, $299; 16 gigabytes, $399. Both models available later this month.

10:48 a.m.: Showing rough cut of new ad for iPod Touch. Then: “One more thing.”

10:50 a.m.: What could that empty spot in the iPod Touch dock be for? Answer: iTunes Wi-Fi music store. Four buttons, top 10s, top albums. According to Jobs, this means you can preview songs on iPod Touch, buy them, download to device and then sync to Mac. Search entire catalog.

10:51 a.m.: Hey … wait a minute … doesn’t Microsoft sell a Wi-Fi enabled music player? What’s it called again … the Microsoft zwned?

10:52 a.m.: iTunes Wi-Fi music store demo: Four buttons: Featured, Top 10, Search and Downloads. Jobs buys John Lennon’s “Imagine” to demonstrate. Fast download: Album art and everything.

10:56 a.m.: Wi-Fi music store will be available in 21 countries, Jobs notes, adding that it will be added to the iPhone via software update later this month.

10:57 a.m.: What? Partnership with Starbucks? (Someone needs to teach Jobs about good coffee.) You’ve got to be friggin’ kidding: Starbucks button will pop up on iTunes whenever you’re near a Starbucks, enabling you to listen to and buy whatever song the cafe is playing. Repeat: Starbucks button in iTunes. iTunes GUI design team silently sobbing in back of room.

11 a.m.: Howard Schultz, founder and chairman of Starbucks, is welcomed onstage. Starbucks is ubiquitous. Also fire hot: seven new stores every day “and we’re still in the embryonic stage.” Embyronic stage? How is that possible? Perhaps they’re planning to stack Starbucks retail stores 3 high in major metropolitan areas.

11:01 a.m.: Demo: Downloads are nice and fast. Occur in seconds, really.

11:03 a.m.: Schultz now talking about Starbucks as an entertainment brand: “With Apple, we will transform the marketplace.” (Wonder if Starbucks will burn CDs the same way it burns its coffee beans?)

11:04 a.m.: New Starbucks slogan: “Drip. Mix. Burn (our coffee).” Kidding. Actually tomorrow’s Digital Daily headline.

11:05 a.m.: More on the partnership: Free access to iTunes Wi-Fi while at Starbucks. Walk into a Starbucks, iPod will immediately recognize what store you’re in and what songs it’s playing.

11:07 a.m.: Very aggressive rollout beginning Oct. 2: New York City and Seattle in October. San Francisco in November. Los Angeles in February. Chicago in March. All Wi-Fi stores completed by 2009.

11:09 a.m.: Jobs: “Lots of people will be happy with this new combination: iPods and coffee.” Note to self: anonymously send Steve a pound of Kenya AA from Stumptown Coffee Roasters.

11:10 a.m.: Now let’s review … New iPod lineup: Shuffle, Nano, iPod Classic, iPod Touch,
iPhone. They range in price from $79 to $599.

Uh-oh. New iPhone? No, but Jobs says that iPhone owners are more satisfied with product than any other device Apple has made.

11:13 a.m.: Jobs announces that the 8 gigabyte iPhone drops in price to $399. (No word on whether Apple will offer rebates to nudniks like me who paid $599 after waiting in line for 4 hours.) “We want to put a lot of iPhones in stockings this Christmas,” he adds.

11:15 a.m.: Guess Paul McCartney must have been too busy to perform “Hey Jude.” Jobs welcomes KT Tunstall to the stage. Jobs walks off to a darkened corner, rocking out with his restrained CEO head-bob. Tunstall ends the event by noting: “Steve Jobs is actually making it more fun to pay for music than steal it.” Sounds like an ad lib, but then again these Apple events are very tightly scripted.