iTunes going to the movies

After conquering the digital music biz and taking the lead with TV shows online, Apple is looking to feature films.

The computer company is in active negotiations with most major studios to add movies to its iTunes Music Store, most likely by the end of the year, numerous sources confirm.

The main sticking point is price.

Apple CEO Steve Jobs, who has been personally involved in the talks, initially proposed selling all films at a flat price of $9.99 — an offer the studios flatly rejected.

“We can’t be put in a position where we lose the ability to price our most popular content higher than less popular stuff,” said a studio exec close to the negotiations.

Apple has traditionally sold digital content at a single price: 99¢ for songs, $1.99 for TV shows and musicvideos. It has recently experimented with some longer video content, however, selling the Disney Channel telepic “High School Musical” for $9.99 and the “Battlestar Galactica” miniseries for $14.99.

Apple gives TV and music companies a 70% wholesale rate and is offering the same to film providers.

When it came to songs and TV shows, Apple was largely defining a new market, as they hadn’t been sold individually before. But feature films already are sold on DVD at varying wholesale prices depending on whether they’re new releases or library titles.

While the homevideo market is slumping — leading many studios to focus on the Internet as the next growth market — it still generated $23 billion in the U.S. last year, and studios don’t want to risk angering major retailers like Wal-Mart or Best Buy by giving better terms to Apple.

Online retailers Movielink and CinemaNow are paying DVD wholesale prices to get digital copies.

There are signs Apple may bend, insiders say, and allow price points ranging from $9.99 to $19.99 in order to differentiate older titles from new releases.

During negotiations to extend their deal with Apple last year, music labels tried to persuade Jobs to allow variable pricing for songs. But thanks to iTunes’ 80%-plus market share in U.S. digital music, he had the leverage to stand his ground.

When TV shows were added to iTunes last year, ABC/Disney was the only provider, with others such as NBC Universal and MTV Networks coming later. But sources at most major studios confirmed they are in some stage of negotiations with Apple, indicating pics from numerous providers could debut together.

Studio sources expect an iTunes moviestore to debut by the end of the year at the latest.

ITunes was the first etailer to start selling songs and TV shows online, but when it adds movies, it will enter a competitive market. Movielink and CinemaNow already sell permanent downloads of films. BitTorrent has a deal in place with Warner Bros. and is in talks with other studios. Amazon.com also will start selling movies online soon, possibly through its IMDb Web site.

But a deal with Apple is key for many studios hoping to grow the digital distribution biz because of the huge iTunes install base and the popularity of video iPods. Apple has sold more than 22.5 million iPods since the video version launched in October. (It’s unclear how many are video iPods and how many are the smaller Nano or Shuffle.)

Since Apple does not license its antipiracy software, other online retailers can’t sell copy-protected music or video that works on an iPod, and other manufacturers can’t make players that work with iTunes content.

“Every studio wants to have broad distribution in digital, and we all know that having Apple as part of that is very, very important,” a studio exec said.

Many predict feature films will bow on iTunes at the same time the video iPod with a bigger screen more appropriate for films is launched. But Apple is remaining tight-lipped, not even telling potential studio partners about its hardware plans.

A rep for Apple declined to comment. Company typically doesn’t announce any initiatives until the day they launch.

Follow @Variety on Twitter for breaking news, reviews and more