Another breakthrough device may be coming from Apple

In the wake of the apparent success of Amazon's Kindle comes a rumor that Apple (AAPL) is developing a fourth screen, a device larger than an iPhone and smaller than a Mac, that could serve as a digital reader as well as an entertainment platform. According to BusinessWeek, the "media pad" would give the viewer a larger screen for movies and video, a welcome prospect for anyone who has tried to watch Iron Man on a telephone screen. And I'd enjoy watching the shows I download from iTunes on a more wieldy platform than my laptop.

It would also be equipped with wi-fi for downloads and streaming content, and could also function as a telephone. I'd be very surprised if it didn't also offer some gaming capability and versions of basic computer programs such as a word processor. While the device will not include a real keyboard, the success of the virtual keyboard introduced on the iPhone shows that this is not a serious limitation.

Apple has also been rumored to be talking with Verizon Wireless (VZ) about partnering to market this device, as well as another new product, a bare-bones version of the iPhone. This is not good news for AT&T (T), which has enjoyed a huge advantage as sole internet provider for the iPhone.

Will such a device threaten the Kindle and the many similar digital paper e-readers? For my money, it's all about readability. The digital paper technology doesn't depend on back-lighting, and therefor is much easier on the eyes. It also provides much crisper text. While the latter may be an advantage that could be overcome, I can't imagine how a single device could show video without back-lighting. Still, given Apple's penchant for innovation, I wouldn't bet against the media pad. Steve Jobs must have been dreaming up something during his hiatus.

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