At this week's Apple event we got a rare chance to speak with one of the most well regarded and tight-lipped veeps in the biz, Apple's Phil Schiller. It's never fun knowing you have to throw half your questions right out because of how good these guys are at keeping mum, but we did get Phil to tell us a little about what he thinks of the iPhone unlock market, 3rd party iPhone apps, the future of hard drive based iPods in an increasingly flash based world, and how he expects iTunes to fare after the departure of NBC. Read on!

Thanks for meeting with us.... So let's get into the product stuff. Steve on stage today kept insisting that the iPhone is still the best iPod that you guys make.

Yes. It's the top of the line.

Well, the touch now has more storage, sans the phone. I mean it's basically exactly the same device. It has all of the same media software and has the browser and YouTube and all that. So why is the iPhone now still the best iPod?

Because it also has the phone. So you get the internet device and an iPod and a phone all in one thing. So you're right. Its not that it can do anything more than an iPod, except that you can certainly do your internet surfing also on the cellular network in addition to WiFi -- so that you have that part of it. It does a little bit more in terms of an internet device because of that access and it has a phone and both they are both as capable in terms of iPods. So, for that reason it's still the top of the line. But if your focus is primarily a touch iPod then sure we have something that's just as good and has added benefit of being amazingly thin. Look at the thinness!

Do you see these two products developing in unison with each other? When one gets a new feature the other gets that new feature? How does that work?

So I'd rather not go there. I'd rather look at what's here today because it wasn't yesterday. Which is, now people have this choice of this amazing touch experience on the iPhone which I think is an incredible revolutionary product. It was when it came out a couple of months ago and it still is today. And we have this other revolutionary touch product that builds on the same technology called iPod touch, that gets it into more people's hands. It starts at a lower price, it's for those people who aren't ready or able to get a phone and a contract with a carrier -- they can still get an iPod touch and I think most importantly it lets us go global with it now -- you saw all countries, all the languages that we can put it out in. When it starts to ship it will be around the world. We'll have the iTunes WiFi Music Store around the world. This is an exciting thing to go from. We look at it all here from the US, but if you're sitting in Japan or Italy or France or wherever there is an exciting new touch product you can get before this month is over, and I think that's really powerful.

Speaking of taking these products around the world, especially these touch screen devices, what do you make of the iPhone software unlock, um, "market"?

[Laughter] I'm not really sure there is a market there at all or yet. So, I'd really rather not make a comment on it. But I don't think there is a "there" there.

So, I think that in addition to having an unlocked iPhone that will work on other carriers' networks especially worldwide, the thing that people really want in iPhone is 3rd party application support. Obviously we didn't see an announcement about that today, but people are doing it anyway and there is actually a lot of really great iPhone applications out there that will also probably work on the iPod touch.

I think the really great stuff that has been happening is the Web 2.0-based stuff. For example, you know Steve demoed the Facebook app on screen today. That's a killer app! They did a gorgeous job on it. So I use a lot of the web 2.0 apps that I've seen out there and I think there is incredible work going on there. I've worked with a lot of developers that are working on those things. So I think the body of work is actually happening on the Web 2.0 space.

I think there is definitively more going on there. But there is something so much better about being able to load a proper software app onto an iPhone and maybe, say, play Nintendo. Do you guys feel that this is something that should just be a natural progression of where you are going?

No. I'm not sure that it needs to be. I won't predict about anything that we may or may not do in the future. But I think that there is a lot to do with these Web 2.0 apps and that's where my focus is. Our developer relations team is hard at work with lots of companies helping them to bring to market some pretty amazing things and that's what I'm trying to help enable right now.

So the iPhone ad campaign was really different for Apple because it took on a utilitarian function. It was really explaining the features and how it works and how it does. And then the touch, which is for all intent and purposes a very similar device is not really taking that same route. Its not the dancers, but its not the here's how it works, here's what it does... What's different about pitching this kind of product to people? Especially because its an in-between iPhone, and the iPod that most people are already familiar with.

Well, first of all I agree with what you point out with the iPhone; with the iPhone we were launching a pretty revolutionary product that had quite a different idea, this touch experience. And certainly unlike any phone people had seen before. So one of the great things with that TV campaign that we launched with it did was to show that. Because we could say all the marketing things we want about it, but at the end of the day when you show somebody tapping on things or flicking a list or pinching and zooming a graphic you've got an instant "wow, that's incredible" reaction. So we knew that probably the most powerful thing we could do with the iPhone was to show that to people and let them experience that on TV and that's been very true -- we've got great response to that TV advertising.

Now, we are coming out with iPod touch and we can first of all, build on that. A lot of people, the awareness is extremely high about iPhone and its touch interface, so now with iPod touch we can talk to that. We can say, touch comes to iPod and people will know what that means. We couldn't do that with the iPhone because the touch experience wasn't out there. People hadn't heard about it. So that's one thing. The other thing I hope the ad does is, the devices are a similar size, they share the same 3.5-inch screen, we don't want people to get confused between them, they are different products. So you want to show it off in a little bit of a different way so that people understand that this isn't the iPhone we're talking about -- now we're talking about an iPod. And so it does look a little different than the iPhone ad, but builds on the interface that people have heard about.

So obviously we didn't know that the touch was going to be announced -- at least not today -- but I think a lot of people are expecting that a few years down the road when storage becomes just so cheap and you have an iPhone with 100 gigs and it costs $150 dollars and you can get it anywhere and it's all ubiquitous technology... is there a point where the iPod just becomes a feature and not necessarily a device? Where the ability to play media becomes so commonplace and is just expected to be in your phone that the iPod ceases to exist in a way.

Oh I don't think so. Not at all. I think we're confusing a couple of points by the way the question is set up. Hardware will continue to move forward. At the end of the day, it always does. We started with a thousand songs and now we are up to 40,000 songs. It's incredible! But with that 40:1 increase in capacity, the product itself is still an iPod and it still does all the things the iPod does and even more. So we've already seen an incredible increase in capacity and prices coming all the way down -- all the way down to the shuffle, and so we know those variables don't change the fact that we want an iPod in our life and it does these cool things for us. So to me the real core essence of what is an iPod is more about the software than even the hardware -- as amazing as the hardware is.

So, the work for Apple is to continue to make that software experience so incredible that it defines the iPod, why its so special and why we all love it. I think if you look over the five plus years of iPod, we've just done the biggest thing to ensure that will continue to be the case -- this year -- which was to move the iPod from its original user interface into this new touch interface. This is the beginning of a whole new path for iPod that delivers incredible features and capability and gives even more reason for iPod to exist in the future. So the secret is software and we have a whole new generation of revolutionary software.

I think one of the hallmarks of the iPhone and now the touch is that its flash based and that it doesn't use a hard drive.

True.

I think that's obviously where the industry is going. How important is that to the iPod line to eventually be entirely flash based?

Well again, I can't make future predictions of things but clearly the majority of our customers choose a flash based product and there are a lot of benefits to it. I get the kinda capacity that most customers need -- 4 to 8GB -- is a range that most customers can carry what they want with them and it means that we can make these iPods so incredibly thin by not having a hard drive in there, by having them in flash, and by not having any moving parts in them -- which is great for durability and reliability and get even better battery life with that. Those are all features that matter to people in an iPod. But in the end that doesn't define what an iPod is. Those are just some of the sub-features that are important to us.

How is the Samsung NAND flash shortage situation they've got going on going to affect iPod lines? You guys use primarily Samsung flash, if I'm not mistaken, and they are predicting that they are going to have severe shortages because of the power outage in Korea.

I can't talk to the operational or supply based management of the product. I wouldn't be the right person to talk about that. But we are certainly confident that we have a great operations plan to deliver on a lot of all these new iPods we've brought out to market to have an awesome holiday season.

So, then there is the NBC question. How do you think this is going to effect iPod sales and iTunes moving forward?

I think, things look great moving forward. We have, as Steve talked about today, with the iTunes music store, the most content of anybody in the business. No one has more music, more TV shows, more movies, more podcasts, more anything across it -- there is a tremendous wealth of content in iTunes and we continue to add stuff every day. I think its going to be great going forward. We try to get everybody in it that we can and we try to make it a great experience for the customer, but at the end of the day through the years if you chart what has happened with iTunes it has grown and grown and grown to offer more and more to customers.

So one of the points that NBC really wanted to underscore -- I don't know why -- was that they wanted more DRM. More restrictive copy protection not only on their content but I guess on the iPods in general--

I'm sorry, I'm not going to talk specifically about discussions with any partner, let alone this one in particular--

My only question is, do you think that DRM on video is the future? Because Apple is already moving toward DRM free audio. So it seems like the natural progression there is to kind of go DRM-free everywhere.

Again, I'm not going to make comments about where things might go; I don't think that would be appropriate today. But I think we have worked really hard to make the music store the best place to buy and manage and experience all this content. We've done a really good job of making this really fun and accessible for people. A great example today is ringtones. That here we've added yet another thing we can do with content on iTunes. We've made it more fun and more usable by everybody. And that content, there is a price associated with it. There is DRM around it. But it works really well as a way that a customer would want it to work, and that's always what we've been about.

[Indicated that we have to wrap the interview.]

Sure, but we do have a few more quick quesitons -- on that topic, is there a particular reason that users can't select ringtones that they've ripped from CDs or content that they already own?

Well, we've worked with content owners to make sure that the content that you purchase a ringtone for has the proper rights associated with turning it into a ringtone. And, so--

So there are different rights if you want to make it a ringtone?

Sure.

If you want to make it a ringtone you have to go through a different set of rights?

Sure, the labels and publishers get the rights for songs to be remade into a ringtone. So part of what we do is to work with those content owners to make sure that there are rights in place for every piece of content to be made into a ringtone.

A little bit of an non sequitur. The Google phone is coming. Do you guys see it as a threat? What do you think of it?

I don't know what it is. Ask me when it's... out.

Eric Schmidt hasn't shown you his Google phone yet?

[Stares]

[Laughter] Yeah, I know, you can't say anything. Thanks for your time!

Update:
Some non-product-related banter removed for brevity.

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