Ben Foss, director of access technology in Intel's Digital Health Group, uses the Intel Reader to scan a book. Photo: Jon Fortt.

When Ben Foss's father in law was dying of liver cancer months ago, friends suggested Foss read "How We Die" to help the family with the grieving process. Foss has dyslexia, and finding an audio version of the book or scanning it into a computer typically would be an ordeal. But in this case he was able to plow through it at 250 words per minute.

Foss did it with an early version of the Intel (INTC) Reader, a $1,500 device he dreamed up along with colleagues in Intel's Digital Health Group. The device launches today as the first consumer product from the five-year-old group. And though its name seems to place it in the same category as trendy ebook readers from Amazon (AMZN), Sony (SNE) and Barnes & Noble (BKS), this reader is profoundly different.

This is not another thin tablet that displays text; instead it's more like a chunky digital camera that instantly captures the words on a printed page and pronounces them aloud. That makes it little more than a curio for mainstream gadget lovers, but a potential godsend for those who struggle to read standard text because of learning disabilities or vision problems.

The reader also poses a real risk for the world's largest chipmaker. Most of its previous forays into the electronics world have ended badly. Intel generally has thrived when it has focused on its core business of providing computing brains, to others and foundered when it has tried to design and market its own finished products.

But as demand for traditional PCs has slowed, Intel has resolved again to target non-traditional areas for growth. In healthcare technology, executives believe they have found a niche where they can build innovative products that medical professionals and consumers will pay a premium to use. The Intel Reader is poised to provide a high-profile test of that strategy – and it delivers a strong first impression.

The Intel Reader has a 4.3-inch LCD display, 4 gigabytes of flash storage and USB slots for adding more. It weighs 1.38 pounds. Image: Intel.

Perhaps that’s because for Foss, the reader is far more than just another project – it’s part of his life’s work. The 36-year-old's learning disability has driven him to work for decades on more convenient ways to get information off the page and into his head. “They say necessity is the mother of invention, but it’s not,” Foss says. “Frustration is.”

Foss lived as a frustrated reader for years. In high school, his mother read aloud to him to help him process the information in assignments. In law school, he scanned book pages onto his laptop and had text-to-speech software play them back to him as he rode a bike to class. Now technology has advanced enough that, along with a team of Intel designers, engineers and software architects, he was able to squeeze a scanner and a digital reader into a device about the size of a paperback novel.

On the outside, the Intel Reader doesn’t look like breakthrough technology. Next to an iPhone, it looks like a museum piece – maybe a mid-90's digital camera prototype. But unlike Apple's (AAPL) iPhone, Intel’s reader isn't designed for the mass market. The finished product is the result of untold hours of tweaking; Foss carved the first prototype from a Styrofoam beer cooler more than two years ago.

Inside there's some impressive technology, including an Intel Atom processor and a Linux-based operating system. Simple menus on a high-contrast screen cater to low-vision users. A thick battery guarantees 4 hours of unplugged use and 30 hours of standby time. A 5-megapixel camera on the bottom of the reader captures images of pages; optical recognition software converts the images into digital text. Text-to-speech software creates an audio file that users can transfer to another device or play aloud on the reader at an adjustable pace.

The slow setting goes below 120 words per minute. The fast setting blazes along at 250 words per minute – a less frustrating pace for speed listeners like Foss.

follow me on Twitter: twitter.com/jonfortt

Barnes & Noble eReader, the Nook

If you're the type of early Christmas shopper who bought a Kindle last week, I hope you kept the receipt, because a newer, equally affordable option is about to hit shelves.

Barnes & Noble (BKS) CEO Steve Riggio on Tuesday took the stage before hundreds of authors, agents, publishers and pundits to debut the company's electronic reader, the Nook.

The Nook will sell for just $259, a steep discount from competitors like the Sony (SNE) Reader and the iRex DR800SG , which both retail for $399. The price suggests Barnes & Noble is going straight for Amazon (AMZN), which recently lowered the Kindle's price to $259.

The Nook uses the same screen technology that powers Amazon's Kindle, but adds an iPhone-like color touchscreen below for easy navigation. Readers have access to 3G wireless on AT&T's broadband network.  The reader holds up to 1,500 books (like its major competitor), but an expandable memory slot allows readers to add up to 17,500 more. "You're getting a lot of eReader for the money," says Sarah Rotman Epps, an analyst with Forrester Research.

Another novel experiment: lending. Barnes & Noble lets readers share titles with friends on any platform in the Barnes & Noble ecosystem. So you like the "Tipping Point?" Buy it for your Nook and lend it to your sister to read on her Barnes & Noble iPhone application. (She'd better not procrastinate; she has 14 days before it disappears.)

Barnes & Noble will turn its massive retail presence into a competitive advantage. Over the next few weeks, the bookstore chain will roll out Nook displays in its 700 stores and 600 college bookstores. Through complimentary Wi-Fi connections in all the stores, readers will be able to browse eBooks on their readers just as they might have always browsed the shelves.

The eBook market is tiny, but its growth has been explosive this year. eBook accounts for less than 2% of traditional book sales, but the $16.2 million in sales for July, for example, represented a 213% increase over a year ago, according to Forrester Research.

Right now Amazon has 60% of the market, but the eReader is expected to be a popular Christmas item this year, and Barnes & Noble plans to get in on that opportunity.

Pre-orders for the Nook will begin this week, and the company says it will begin shipping in late November.

The large bookstore has been lunging into the eBook market at full force. It purchased independent eBook seller Fictionwise earlier this year and launched its own eBook store in July. It has also unleashed a series of smartphone applications, with more planned.

While there's no guarantee Barnes & Noble will succeed, it's a necessary move as the book market becomes increasing tough to navigate.

Traditional books — the kind you bring to the beach and lug on the subway — are getting much cheaper.

In the last week, Amazon, Wal-Mart (WMT), and Target (TGT) have begun selling some of this year's hardbacks that are anticipated to be the most popular — books like Stephen King's "Under the Dome " ($35.00) and Sarah Palin's "Going Rogue" (list price: $28.99) — for roughly $9 on pre-orders.

Sure, it's typical to discount bestsellers, especially during the holidays, but few retailers are bold enough to bring down the prices by more than 50%. Barnes & Noble must now hope the Nook masters its niche.

Tyrese Gibson's Mayhem is a comic book – the first standalone print publication for sale in Apple's iTunes LP format.

Tyrese Gibson’s Mayhem is the first digital book for sale on iTunes 9 – perhaps an early sign of Apple’s (AAPL) desire to take on Amazon’s (AMZN) Kindle and Sony’s (SNE) Reader in the digital book market.

I would have missed the significance of Mayhem on iTunes if I hadn’t run into Gibson himself on Wednesday. After the Steve Jobs iPod keynote, I spotted the actor/singer known for roles in action movies like Transformers 2 in the demo area where attendees were playing with the new iPods and software. He had a laptop open and was doing a few TV interviews about his Mayhem project, and its debut on iTunes.

Gibson isn’t the first person you’d expect to make a mark in the comic book business. For one, he’s not a longtime comic book fan – he only recently got interested in the medium while attending the Comic-Con convention to promote the movie Death Race. After seeing the devotion of die-hard fans there, he was determined to get in on the action – and he conceived of Mayhem, a vigilante tale with a diverse cast of characters.

Take a look at the Mayhem comic iTunes LP ($1.99), and it’s easy to see the potential of book or magazine sales over Apple’s digital store. For starters, Apple has amazing reach – there are more than 100 million iTunes accounts connected to credit cards, which is a sizable audience. In the Mayhem iTunes LP itself there is a beautiful flow to the action; new panels zoom into the foreground as others fade away.

And it’s not just text and images; both audio and video come along with the package. The interface is designed so that it would obviously work nearly as well on a touch-sensitive tablet – or even on an iPhone – as it does on a full-fledged PC.

Perhaps that’s because Apple itself had a hand in designing this digital version. While hanging out with Gibson, I also briefly spoke with the two creators of the Mayhem iTunes LP, Sam Herz, one of Apple’s user interface engineers for the iTunes Store, and Barry Munsterteiger, creative director for rich media and Internet technologies.

The pair said that while working on Mayhem, they created some tools based on standard web technologies like HTML, Javascript and CSS that others might be able to use to create iTunes LPs. But they’ve since turned over their work to higher-ups at Apple, and they’re not sure what will happen to their work.

They might not know, but we can hope: Though CEO Steve Jobs has publicly talked down the idea of Apple building an e-book, he hasn’t closed the door on a multi-purpose device that does the same thing – something that might look like an oversized iPod touch. Maybe the tools Apple created to digitize Gibson’s Mayhem comic will be part of an author’s kit with that oft-rumored Apple tablet?

Sony Reader

In what is fast shaping up to be a war in the e-reader marketplace, Sony (SNE) has launched the latest salvo, a sub-$300 touch-screen "Reader Touch Edition" and the $199 "Reader Pocket Edition," which features a 5-inch display. The company is also lowering prices of ebooks. New releases and best-sellers will all be $9.99, matching Amazon’s (AMZN) price point for the first time.

In addition to lowering prices, adding a touch-screen and trimming form factor, Sony is also attempting to differentiate itself by opening the ebook market place. It offers free access to the 1 million public-domain books digitized through the Google Books Project, and ebooks purchased at Sony’s store, which use the standard EPUB format, can be shared on any combination of six PCs and e-reader devices. Owners of the Sony devices can download ebooks in the library for 21 days.

It’s ironic that Sony would play open-standards champion, given its rich history of proprietary technologies (Betamax, Memory Stick, etc.), but Steve Haber, president of Sony’s Digital Reading Division, says the company is committed to openness as a way to hasten the move from paper to digital.

“A year and a half ago, when we mentioned ebooks, people would say, ‘That’s not going to happen.’ But it’s a very hot category right now and it can grow tremendously,” he says. “Our plan is for a ubiquitous content for consumers. It’s not about one store/one device. It’s many stores and many devices.”

Sony’s e-readers, Amazon’s Kindle, and the forthcoming Plastic Logic device (which will partner with Barnes & Noble and be available sometime next year), all use E Ink technology. Unlike Kindle, the Sony devices, available later this month, will sell at many retail outlets, including Best Buy, Costco, Target, and Wal-Mart. Also unlike Kindle, the Sony devices aren’t wireless. Downloading content requires consumers to connect the readers to PCs.

But Haber says the company has been working on a wireless device and plans to announce availability soon. The Christmas selling season would seem a safe bet. “We will be sharing more things later this month and more later in this year,” he says. “We’re breaking a brand new price zone with a pocket-size reader. It’s a really wonderful experience. It will introduce ebooks and epaper to a whole new audience. But this is the beginning. This is not the whole story.”

As of last January, Sony had sold more than 400,000 e-reader devices, at which point it stopped disclosing sales. Haber intimates that the company adopted the policy in reaction to Amazon’s reticence. “We were giving out numbers and realized we were the only ones,” he says. “but we’ve sold a significant amount since January, and the momentum is only getting faster and faster.”

One Forrester analyst estimates that as many as 3 million e-reader devices will have sold by the end of this year.

The departure of outsized NBC chief Ben Silverman is the third time that the producer will team up with IAC’s Diller.

By Richard Siklos, Editor at large

Silverman, shown at Fortune Brainstorm Tech, days before leaving NBC. Photo: Robin Twomey

Ben Silverman’s  departure from NBC this morning comes as no huge surprise: he was an out-of-the-box choice to head programming at major broadcast network and his two-year-plus tenure was marked by lots of attention on Silverman’s outsized persona but little yet in terms of new prime time hits for the long-struggling Peacock Network. (For more on Silverman see our story, The Player.)

It also makes perfect sense that Silverman’s exit  involves the creation of a new and as yet unnamed production company in partnership with IAC Interactive Corp., (IACI) the Internet company led by mogul Barry Diller. This will actually be the third time that Silverman and Diller have teamed up to produce ventures aimed at melding conventional TV advertising, programming and Web—and both other times yielded the men handsome returns.

“Barry stirs the pot and he sees the future,” Silverman said in an interview today. 

Diller, on stage at Brainstorm Tech, bets on Silverman. Photo: Amy Crilly

The history here is that Diller backed Silverman with $10 million in the creation of his production company, Reveille, back in 2002.  Silverman had made a name for himself at the William Morris Agency in London for importing foreign show concepts like Who Wants to Be a Millionaire for the U.S. audience and re-selling formats around the world.

And when Silverman set up a second fund at Reveille before joining NBC in 2007, Diller backed him again with another $15 million (quietly—you find no mention of these investments in the financial statements of IAC, better known for Web sites like Match.com and Citysearch.). Indeed, Diller and Silverman were talking about a third and larger Reveille fund when Silverman decided to take the NBC job in 2007, a move that led to him selling Reveille a year or so later to Elisabeth Murdoch’s Shine Group for some $120 million. (NBC is part of NBC Universal, a joint venture of GE (GE) and France's Vivendi (VIVDY).

The size of the new venture, nor its name, have not been disclosed. One thing that is clear is that Silverman may be more comfortable and adroit as a seller rather than a buyer of programming–NBC said it could also be a backer or partner of Silverman’s new venture, and it seems likely that both Shine and Sony (who also looked at backing the old Reveille) would look at being involved.

At Reveille, Silverman made a  name with such shows as ABC’s Ugly Betty (originally a Columbian telenovela) and NBC’s The Office (derived from the British sitcom hit.).  A frenetic character, Silverman had also developed and sold the original show The Tudors to Showtime and done deals with Microsoft.  But where Silverman and Reveille really made a name was in the packaging of product-placement laden and sometimes shlocky reality fare like The Biggest Loser. And Silverman prides himself on being a “360” media executive who understands not just the creative end but the marketing, technological and international ends of the business at a time when the conventional TV advertising spot is in serious decline.

Silverman/Diller 3.0 will differ from past iterations by focusing on providing the international, digital and advertiser relationships for established producers who Silverman has done business with – a group that might includes Office co-producer Greg Daniels or TV host/producer Ryan Seacrest, a close Silverman pal.

Silverman’s marketer-first approach to network programming may be the future of television but Hollywood traditionalists bristled at his approach at a time when the downturn compounded the network’s challenges: Two of NBC's dramas last  featured Ford and General Motors products as de facto characters in the shows, but both were soon off the air. Silverman’s  biggest legacy at NBC, along with that of NBC Universal CEO Jeff Zucker, who hired him, may be the decision to give Jay Leno a weeknight live variety show at 10 p.m. starting this fall, on the argument that such shows are less expensive to air than conventional dramatic series and live TV is less prone to recording and ad-skipping. (Plus Leno may have gone to a rival network).

Silverman said that his tenure at NBC can’t be judged until at least November, when the first true slate of shows he developed at the network will air—and once the dust settles from the Leno move.  But he did concede that corporate life in a megalith like General Electric  may not have been the perfect fit  for him. “I want to build a culture, I don’t want to try and change a culture,” he said. “And that did hit me.”

Both Silverman and Diller were at Fortune Brainstorm TECH last week in Pasadena, albeit on different days.  Tellingly, Diller spoke about how the production of video was fundamentally changing and how shows can be produced more cheaply by a new generation of talent that is adept both in front of and behind the camera. For his part, Silverman – who arrived with a retinue of NBC PR folks—was his usual ebullient self, and spoke mainly of relationships that NBC is forming with advertisers rather than specific programs. The pair sewed up their new arrangement after Diller spoke at the conference on Friday.  Zucker replaced Silverman with broadcasting veteran Jeff Gaspin, who will oversee not just the network but NBC’s profit-spinning cable channels.

With the launch of the Flip video camera in May 2007, the camcorder market has never been the same. Flip brought video creation and sharing to the masses, which meant even more footage of cats riding skateboards. (We can't thank them enough for that.)

Consumers embraced the convenience, simplicity, portability, and affordability of Flip's "point and shoot" video camera. It has few buttons, records video on an internal chip, and uploads footage to a computer through a USB key that "flips" out of the camera. Software loaded on the device transfers clips seamlessly to the Web. Models start at $150.

Soon the device was grabbing market share from Sony (SNE) and JVC — more than two million of the cameras have been sold — and earlier this year networking giant Cisco (CSCO) snapped up Flip maker Pure Digital for $590 million.

But there's a new rival on the scene: Apple iPhone 3GS, introduced in early June, boasts a video capture function. And some technophiles are asking if Flip's days as the No. 1 pocket video recorder are numbered.

There's no question the iPhone's video function is one of the coolest new features on the phone. It absolutely competes with the Flip, and in some ways is actually superior.

Unlike Flip, you can edit clips right on the iPhone by moving the start and stop points. You can also share video immediately via wireless email on the iPhone 3GS. Flip can't do that. And while Flip does have a leg up with its high definition models, the standard definition iPhone is wired for HD. All it needs is a software upgrade (Apple (AAPL) had to leave something for the next version of the iPhone).

The iPhone also has a sleeker design and a larger screen than Flip, and performs a wide range of functions. The price tag reflects that, ranging from $199 to $299 for the phone plus a two-year contract with AT&T (T) easily coming in at $70 a month.  At $230, the MinoHD is the Flip's most expensive model.

The iPhone can do almost everything the Flip can, and in some cases, even more. In spite of this, tech and camcorder industry analysts don't believe it's a threat. Ironically, they say that many consumers are attracted to the Flip precisely because it lacks the iPhone's panoply of functions and add-ons.

"Much of the strength of the Flip comes from its simplicity and dedicated purpose," explains Ross Rubin of market researcher NPD group. While Rubin acknowledges the advantages the iPhone's video capture has over Flip, he argues that "these may not be as important or could be confusing to many Flip users that eschew sophistication in their devices."

Despite the seeming trend of convergence toward a single multipurpose device, analysts claim many consumers still prefer electronics dedicated to one task. "The notion of the hybrid cannibal device always pops up," says Chris Chute of research firm IDC. "The consumer doesn't say to themselves, 'I'm going to buy one device that does everything okay.'"

Indeed, the entrance of camera phones into the market five years ago sparked speculation that digital cameras would disappear because everyone would be printing photos from their phones. That didn't happen. And the Flip has held up in a market where digital cameras and other devices capture video, Rubin notes. "The iPhone is simply among the latest devices to offer video recording among its features."

The iPhone doesn't have all the edge either. To start, Flip is accessible through many more channels than the iPhone 3GS. Flip's MinoHD currently holds the No. 10 spot on Amazon's list of electronics bestsellers. You can't even buy the iPhone 3GS on Amazon.

As for the design, while the Flip might not be as sleek as the iPhone, it's nearly the same size and the Mino model is lighter in weight. The Flip is also more affordable and doesn't require a contract commitment, making it an easier sell to those outside the "early adopter" set.

To those for whom the ability to share video immediately is a real sticking point, the analysts recommend patience. IDC's Chute predicts that Flip will introduce wireless sharing by the Consumer Electronics Show next January. In the meantime, sharing on Flip is still relatively convenient, especially with its user-friendly software.

The analysts seem certain that the new iPhone won't challenge Flip's market position for the time being, but that doesn't mean the horizon is clear. Creative Strategies analyst Ben Bajarin thinks that video capture in phones could become a problem down the line. "How do they compete if this trend of higher resolution video capture and more shows up in more and more smartphones?"

Meanwhile both Rubin and Chute suggest that a video capture enabled iPod Touch or Nano could be a more dangerous to Flip than the iPhone. "They're adding functionality to a media player, and the devices are sold at similar places," explains Chute.

Flip's direct competitors pose the greatest risk, analysts say. Sony, Sanyo, Creative and Kodak have all launched products in the "Point and Shoot Flash" camcorder category. As Flip looks to expand its presence globally, it will face intense pressure from these contenders, many of whom already have brand equity in international markets.

SanDisk's Sansa media players are number two in the market, behind the iPod. Image: SanDisk

SanDisk CEO Eli Harari once plotted to dethrone the iPod with a series of "iDon't" ads ­ a marketing campaign that cast Apple iPod users as fad-driven sheep, and promoted his company's Sansa media players as the smart alternative. Some fads, however, don't pass. And in his sunny Silicon Valley conference room one recent morning, the founder and CEO of SanDisk admits what many music lovers have known for a long time: the iPod wars are over, and Apple (AAPL, Fortune 500) won.

"You can't out-iPod the iPod," Harari now admits.

Even so, one could argue that SanDisk (SNDK) won something too. Its Sansa (which remains a distant No. 2 to the iPod) helped prove that SanDisk's core product, flash memory, is the best storage technology for mobile gadgets such as the Sansa and iPod. This in turn sparked demand for SanDisk's patents, bringing the company a healthy stream of licensing and royalty revenue. (AAPL) (MSFT) (INTC) (SNE)

Full story

On Christmas Eve, at the height of a holiday season that Steve Jobs claimed was the first in a decade he got to spend with his family, Apple's (AAPL) ailing CEO was on the phone screaming at the chairman of Sony Music (SNE).

That's the picture Tim Arango paints in Monday's New York Times in an article that describes the "tense and antagonistic" relations behind the seemingly harmonious music pricing agreement unveiled at Macworld less than two weeks later.

On Jan. 6, Apple announced that the major record labels had agreed to drop their demands for copy protection in return for the right to charge more than 99 cents for new and popular songs on Apple's iTunes store.

But according to Arango, the negotiations were anything but cordial.

"Disagreements over the timing of the changes … resulted in a particularly tense conversation on Christmas Eve between Steven P. Jobs, the chairman and chief executive of Apple, and Rolf Schmidt-Holtz, the chairman of Sony Music. …

"According to a person briefed on the telephone call, Mr. Schmidt-Holtz and Mr. Jobs had a heated exchange by phone on Christmas Eve. Eventually, Sony gave in and agreed to a longer waiting period …

"A spokesman for Apple declined to comment, as did a representative for Sony Music. But chatter about Mr. Jobs’s combative tone on the call ricocheted around the music industry, and it was regarded as another display of his tough bargaining tactics, made possible by Apple’s position as the dominant seller of music …

'I think Steve has been smart, and he knows he has the upper hand,' said Dave Goldberg, the former general manager of Yahoo Music." (link)

Although Jobs has since taken a leave of absence to deal with medical problems, the music industry does not expect Apple's bargaining manners to become any more pleasant.

"The entire Apple staff,"  writes Arango, "including Eddie Cue, the vice president in charge of iTunes who handles the relationships with the record labels, do their best to follow Mr. Jobs’s style in their own negotiating." (link)

See also:

• The cost of removing Apple's copy protection
• What's going on with Steve Jobs' hormones?
• Why does Steve Jobs look so thin?

If a picture is worth a thousand words, here's five grand worth of Apple (AAPL) news in charts and lists released over the past couple of days.

1. Web Brands. Apple scored No. 10 in Nielson Online's ranking of the top Web brands based on the number of unique visitors each site drew in December 2008 — which isn't bad considering Apple.com's focus is so much narrower than the brands it's up against, like Google (GOOG), Yahoo (YHOO) and Amazon (AMZN). (link)

2. Social Brands. The iPhone scored No. 1 — ahead even of its parent company at No. 3 — in the Vitrue 100, a new ranking launched this week by an Atlanta-based marketing company with a deliberately misspelled name. Vitrue's list ranks blue chip brands by how often they get mentioned in blogs, photo-sharing sites and such social media entities as Facebook, MySpace and Twitter — presumably a measure of how large these names loom in the minds of an emerging category of early adopters.

3. Days to 1 Million. This comes from an Engadget reader named Noel F. who used published sales data to compare the rate at which the leading smartphones achieved the market penetration milestone of 1 million units. However, as Engadget's Tom Ricker notes, this leaves out the important factor of geographical footprint at launch. The Google Android G1, for example, launched only in the United States. The iPhone 3G was released simultaneously in 21 countries. (link)

4. Volume vs. Revenue. CounterNotions's Kontra uses data from GigaOm's Jose Fermoso to demonstrate that what matters is not how many smartphones you sell, but how much you make on each sale. Unfortunately, both writers' comparisons are a bit off since Apple's Q1 numbers include revenue and earnings not just from iPhones, but also from Macs, iPods and other goodies.

5. Stock Price. Finally, a glance at Apple's share price, which having suffered a thousand cuts in the past year finally picked up a little traction in the past two weeks.

How does Apple plan to sell large quantities of iPods this holiday season in a depressed market already saturated with MP3 players?

By repositioning them as high-end game machines.

That's the message coming through loud and clear from Cupertino, not only in those ubiquitous TV ads proclaiming the iPod touch "the funnest iPod ever," but in a series of public pronouncements from executives usually content to let Apple's products speak for themselves.

Apple marketing guru Greg Joswiak last month called the touch "the future of gameplay" (link). Tech evangelist John Geleynse on Friday proclaimed it a "game console" in the same league as Sony's and Nintendo's (link).

Even CEO Steve Jobs entered the fray, telling the Wall Street Journal last month that the iPhone and the iPod touch "may emerge as really viable devices in the mobile games market this holiday season" (link).

It's an interesting switch in marketing strategy, made just before what should have been — in normal economic times — the biggest selling season for both digital audio players and hand-held game machines. Now it's a scramble on both fronts, and the players are a little desperate. Even, maybe, Apple.

When it first came out, Apple billed the iPod touch as an iPhone without the phone — a portable media player and a mobile Wi-Fi Internet device without the monthly bill from AT&T.  But it also came without AT&T's (T) subsidy, which pushed the touch's average retail price into the mid $300s and kept its quarterly sales — after an initial burst last December — in the 2.0 to 2.3 million range.

With a price cut in September and, equally important, a wave of thousands of games written for the iPhone yet playable on the iPod touch, Apple sensed a new opportunity.

But going up against Nintendo and Sony while maintaining the fat margins to which it has become accustomed required that the company perform a neat trick: it had to flip the usual video console business model on its head.

Nintendo (NTO.F) and Sony (SNE) use the Gillette razor/razor blade strategy: they sell their hardware as cheaply as possible — often at a loss — and make their profit on the games, which typically sell for anywhere from $19.99 to $39.99.

Apple (AAPL) makes nice profits on the hardware and leaves a few crumbs on the table for third party software developers, whose games typically sell for $0.99 to $9.99, if not for $0.00. (See Trouble in the (99-cent) App Store.)

Here's how the three machines — and their top-selling games — stack up:

Analysts are split on whether the strategy will work. Kaufman Bros.'s Shaw Wu is bullish; he believes Apple will sell 21 million iPods this quarter — almost as many as it sold last year. The normally bullish Gene Munster at Piper Jaffray is bearish; he doesn't expect Apple to sell more than 18.6 million units, down 16% from 2007. (See iPod holiday sales: Hot or Cold?)

Hand-held gaming is a brutal business and Apple is not the first company to try to break in. The field is littered with the carcasses of portable game systems marketed, priced down and ultimately abandoned. For a gallery of machines past and present see below the fold. (Source: here.)