So says Merrill Lynch analysts who follow the market closely. ThinkSecret.com has all the details, but here’s the important graf on video:

Milunovich dismisses the notion that a video iPod may follow after a photo iPod, echoing previous sentiments from Apple executives. “In our discussions with management about usage patterns, it is clear that a Video iPod (for playing movies) gets the thumbs down,” he writes. Apple simply doesn’t see a strong a device that would require users to view a movie on a small screen for an extended period of time.

Something tells me this isn’t a dead issue yet. If other vendors are successful, look for a change of heart. It’s probably prudent to let other companies prove the market and see what develops.