Disney on board as Apple expands its vision

Apple Computer’s hush-hush “special event” Wednesday had only one big surprise — but it was a doozy.

CEO Steve Jobs unveiled the long-awaited video iPod Wednesday and a new version of its iTunes software — with video downloads — to go with it.

The shocker came when Jobs announced that the Walt Disney Co. would provide some of the most popular shows on ABC and the Disney Channel for pay-per-download via iTunes.

It’s the first time a major net has made its programs available for pay-per-download.

Pact is a giant step toward broadcasters’ stated goal of finding new ways to monetize content they currently provide free to consumers. Cable-based video-on-demand is still more likely to generate big bucks for nets in the short term but video-via-iTunes opens another potentially huge revenue stream.

Announcement also positions Apple to become an important distributor in filmed entertainment, just as it already is in music, where iTunes is easily the leader in legal, paid downloads and the iPod has become one of the most popular consumer electronics products ever.

The Apple-Disney-ABC video download partnership kicks off with five of the Mouse House’s shows: Alphabet’s “Lost,” “Desperate Housewives” and “Night Stalker,” and Disney Channel’s “That’s so Raven” and “The Suite Life of Zack & Cody.”

New episodes will be available for download on iTunes the day after they air. Past episodes, including the entire first seasons of “Lost” and “Desperate Housewives,” are available immediately. Each episode will cost $1.99.

The programs can’t be burned to DVD but can be viewed on computers, iPods or even on a television screen.

The initial video offerings on the iTunes Music Store also include 2,000 musicvideos and six short films from Pixar, Jobs’ other entertainment venture.

No feature films were available at launch and Apple execs, as usual, were mum on the future.

But Alex Luke, Apple’s director of music programming and label relations, said, “Like we did on the music side, we’re really viewing this launch as a starting point. We’re going to grow that library and make as much content available as possible.”

Since Disney is the distributor on Pixar’s library titles, and clearly Jobs wants Pixar content available via iTunes, pact creates yet more incentive for Pixar and Disney to strike a distrib deal.

It’s likely, though, that there’s a greater market for TV shows for download than for feature films. Jobs himself has often noted that people don’t like watching movies on tiny screens.

But consumers are expected to be more receptive to newscasts, sports highlights and other TV podcasts on handheld players.

The video iPod had been widely expected and even hinted at by Apple, whose execs had said the iPod product line would be updated for holiday shopping season.

But the question had always been content. Skeptics saw little value in a video iPod if the only downloads were musicvideos.

All that changes now that iTunes offers “Lost” and “DH,” shows that not only command a loyal audience but have a highly serialized storyline that makes viewers want to catch every episode in order and not wait for reruns.

Disney gets to monetize all that demand. Apple gets a built-in, loyal aud eager to watch the shows.

ABC’s Anne Sweeney said Jobs approached Robert Iger, then Disney prexy, earlier in the year to propose the idea. Iger, an ABC vet, has long said that he wanted to use digital distribution channels to find new revenue streams for Disney content.

Sweeney said the Apple deal continues a strategy ABC started with news division content last year, i.e., providing “news wherever and whenever you want it.”

“We’ve been looking for ways to extend that into entertainment,” she said. “This is the beginning.”

Sweeney said payment to producers, thesps and scribes associated with the shows being uploaded to iTunes will be handled in manner that “is close to the DVD model.”

What’s more, there aren’t any messy network-studio battles to contend with since ABC and Touchstone are both part of the Mouse House. Industry observers are already predicting much bigger headaches when it comes to shows produced by studios and nets from different congloms (think frosh comedy hit “My Name Is Earl,” produced by 20th for NBC).

“The system hasn’t caught up with the technology yet,” one studio exec said.

Sweeney said ABC wasn’t able to discuss the Apple deal with affils prior to its announcement due to Apple’s strict code of confidentiality. However, affils were briefed Wednesday and Sweeney said there were no serious complaints.

Exec said she doesn’t think putting episodes of “DH” or “Lost” on iTunes will impact ratings for their telecasts.

“We don’t see any of these platforms cannibalizing each other,” she said. “It’s a very different experience watching ‘Desperate Housewives’ Sundays at 9″ than on an iPod.

The video iPod itself would have been important news even without the Disney deal.

Offered at the same price as the existing top-of-the-line iPods, the new device not only plays video, it’s smaller and thinner than its predecessors while offering more storage capacity.

Greg Joswiak, vice president, worldwide iPod product marketing for Apple, said that while the new iPod isn’t the first video player in the marketplace, Apple saw something its competitors had missed.

“They’ve forgotten that music drives the portable market,” Joswiak said.

“We didn’t hang our hat on video; we still have music as the most important part of the iPod.”

The new iPod stores video at a resolution suited for its 2.5″ screen, 320×240 pixels, but it can play back onto a regular television via a $19 cable.

At that resolution it’s not quite a Tivo-in-your-pocket, but “It looks pretty good (on a TV),” Joswiak said.

Disney and ABC execs apparently agreed.

Apple’s third, less-hyped announcement also may prove to have long-term repercussions for the entertainment industry.

Company introduced an iMac computer that comes with new home-entertainment software dubbed Front Row. Package helps consumers organize, play and control digital entertainment content, including music, podcasts, photos, home movies, DVDs and movie trailers.

Bundled with an Apple remote control, the software moves Apple toward its stated goal of establishing its Macintosh computers as the “digital hub” for home entertainment systems.

The iPod, iTunes, the Motorola Rokr, iTunes phone and Front Row are all part of Apple’s long-term “digital hub” strategy.

Company, which built the first successful personal computer but lost out in the PC market to machines that run on Microsoft Windows, has become the dominant player in music players, thanks to the iPod.

It hopes to leverage its success in entertainment into other markets, including computers.

Tuesday Apple reported record 4th quarter profits and rapid sales of the iPod Nano, but its revenues didn’t meet the Street’s high expectations. Its stock fell 10%. Wednesday’s announcement didn’t impress investors much. Apple shares fell another 4.5% Wednesday, while Disney fell almost 2%. Both companies were up slightly in after-hours trading.

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