Studios join Apple’s movie-rental service

Robert Durell

January 15 2008

Los Angeles Times

Steve Jobs unveils the long-rumored feature at Macworld conference, and, in a surprise, says it will have movies from each of the major film companies.

By Michelle Quinn and Dawn C. Chmielewski, Los Angeles Times Staff Writers

January 16, 2008

SAN FRANCISCO — Apple Inc. Chief Executive Steve Jobs says he might have overcome the two biggest stumbling blocks facing digital movie downloads: a dearth of things to watch and a reluctance by consumers to fire up their computers to watch a movie.

Jobs unveiled a long-rumored movie rental service through Apple's iTunes Store during his keynote speech Tuesday at the Macworld Conference & Expo. But he added the surprise that the service included films from each of the major studios, and that an upgrade to the Apple TV set-top box would let users order digital movies directly from their televisions via remote control.

"I think we got it all together," Jobs said. "There is no computer involved here. They are doing it on their couch on their wide-screen TV."

Jobs also wowed the crowd with the MacBook Air, a new laptop that he called "the world's thinnest." The $1,799 computer, which will start shipping in two weeks, weighs 3 pounds and is so thin that Jobs showed it fitting comfortably in an inter-office mailing envelope. It comes with five hours of battery life, a full-size keyboard and a 13.3-inch screen.

He also said Apple had sold 4 million iPhones since they went on sale in June. Analysts said Wall Street had expected more, which could have contributed to a 5.5% drop Tuesday in Apple's stock price, to $169.04.

The movie rental and Apple TV developments could help Apple, which played a key role in creating a legal online music market with its iTunes store, become the central gateway in the future of digital entertainment, analysts said.

"This is to the movie and the TV industries what iTunes has been to music," said Michael Gartenberg, an analyst with Jupiter Research.

But the service has drawbacks that could limit its appeal. It is expected to offer just 1,000 films by the end of February. New films won't be available for download until 30 days after the DVD is released. And there are some restrictions that might confuse consumers.

Older films cost $2.99, newer releases cost $3.99 and high-definition versions cost $1 more. Once customers have started to watch a movie they have 24 hours to finish it (or watch it multiple times). Unwatched movies disappear after 30 days.

Apple TV is the company's response to a problem nagging many consumer electronics makers: how to make it easier for people to watch Internet videos on the home's biggest screen — the television.

Jobs admitted the set-top box hadn't sold well since its launch a year ago, but he said the newest version would free people from having to turn on their computers to rent videos and then transfer them to the TV to watch as they do now. Apple also cut the device's price to $229, from $299.

"This is going to be one of those milestones when you look back on the growth of digital media," said Thomas E. Lesinski, Paramount Pictures' president of digital entertainment.

One analyst speculated Apple's rental agreement might help end the writers strike that has beleaguered Hollywood. The Writers Guild of America is at odds with studios over how writers should be paid for digitally accessed content.

"This puts a price tag on the value of streaming video from a company that has shown it can put value on content," said Richard Doherty, research director of Envisioneering Group, a technology assessment and market research firm based in Seaford, N.Y. "It's going to talk to the 35 million households that are Internet-enabled households and doing video on demand."

But there are doubters. The pressure is on Apple to stock its library of movies and TV shows, which don't carry high profit margins, said Charlie Wolf, an analyst with Needham & Co.

"Delivering content is not very profitable for Apple, but Apple has to have content to sell iPods," he said.

One of the surprising content partners was Universal Pictures, which licensed its films for rent through Apple even though its NBC Universal television division yanked its shows from iTunes after disagreements over pricing. People familiar with Universal's thinking said the studio did the deal in part because Apple allowed the flexible pricing on movie rentals that it had resisted on TV downloads.

"The terms of the agreement are a win-win for all involved," Craig Kornblau, president of Universal's home entertainment group, said in a statement.

The fine print on the Apple TV rentals confused some Macworld visitors.

Customers can buy or rent movies through iTunes when they're at their computers, but when they want to order a film directly through Apple TV's on-screen menu, renting is the only option for some movies. Also, movies rented directly to a television can't be watched on a computer, iPod or iPhone. To get versions they can transfer to their choice of screens (including the TV), customers must use the computer.

Muddling through the variations, Douglas Pool, a deputy sheriff with Humboldt County, said he was still interested.

"I would never rent over the TV, though, because I would lose the flexibility," he said. "But I can see why some people would want to just have it over the TV."

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