Industry still not fully in line with Jobs' vision

Steve Jobs has programmed a ringtone to alert him when NBC Universal calls: “Give Peace a Chance.”

Apple’s CEO joked about the John Lennon tune during a Wednesday-morning demonstration of iTunes’ new ringtone capabilities — his lone reference to Apple’s increasingly contentious relationship with Hollywood content providers.

Event focused on the company’s holiday hardware lineup, including an array of upgraded iPods and a new partnership with Starbucks.

In the background, however, was a development with which Jobs is likely concerned: Two years after Apple started selling TV shows via iTunes and a year after it added movies, Hollywood is still not fully aboard with his vision and has chafed, in some cases, against Apple’s firm grip on the high-end content download-on-demand biz.

After months of negotiations, insiders say Apple still has only a few studios aboard for its effort to add movie rentals to iTunes. If and when it launches, the service could be a boon to Apple TV, which hasn’t gained much traction with consumers since launching last spring.

Once video-on-demand is available, Apple TV would become a digital movie rental box with the ability to stream iTunes music and video downloads into the living room. Most of the studios already selling movie downloads on iTunes, such as Disney and Paramount, are interested in VOD.

Although the terms for a video-on-demand deal would be comparable to those on cable and other Internet videostores, some other studios aren’t signing up until they can resolve their biggest issue with Apple: price.

Apple and most of the studios have very different ideas about what consumers should pay to download a movie. That’s why Disney, in which Jobs is the largest individual shareholder, remains the only studio selling new movies through iTunes for $12.99, though Paramount, MGM and Lionsgate sell their library titles for $9.99.

NBC Universal recently warned that it doesn’t intend to renew its contract with iTunes, and some other network and studio congloms are similarly irritated. They want to be able to charge more for certain popular programs.

But Apple is remaining firm. Though its contract with NBC remains in place for another 90 days, it won’t be adding any new episodes of Peacock programming to iTunes during that time.

That could hurt NBC at a time when it needs to convert at least one of its new shows into a hit. NBC execs attributed the staying power of “The Office” last fall to its popularity on iTunes.

On Tuesday, NBC U made a point of tubthumping its licensing pact with Amazon’s competing Unbox download-on-demand service, which will offer NBC series downloads a day after their broadcast preems. Unbox also is offering free downloads of four new Peacock skeins: “Bionic Woman,” “Chuck,” “Journeyman” and “Life.”

In an interview following Jobs’ presentation on Wednesday, Eddy Cue, VP of Apple’s applications division and its chief negotiator with Hollywood, maintained that his company knows best what consumers want when it comes to digital downloads.

“Having the right price is a key part of our ability to compete with piracy, which is free,” Cue told Daily Variety. “The customers decide what the right prices are, and they have shown they love our price and selection, which is why we have sold nearly 100 million TV shows.”

Sources at NBC U and Fox, which has a contract with Apple set to expire this fall, said talks were ongoing.

It’s believed NBC would like other nets and studios to follow its lead, but so far, there’s been no movement on that front. ABC and CBS, for example, have strong relationships with Apple, and industry analysts believe it’s unlikely either net will go to war with Apple any time soon.

Indeed, in contrast to the NBC kerfuffle, one top-level Disney exec said the conglom’s association with Apple — which opened the online programming floodgates with its iTunes program licensing pact in 2005 — remains solid.

“It’s been a very good place to have content,” the exec said. “They respect our issues about piracy, and they’ve been great marketers with us. Everything we’ve done with them has helped our shows on the air.”

The exec also wondered, as others have speculated, whether the iTunes spat is related to the upcoming launch of Hulu, NBC U’s online video partnership with News Corp.

Cue said that he would like to have a broader selection of movies on iTunes. No matter how much customers love iTunes’ pricing of movies, they apparently aren’t embracing film downloads as much as music and TV, since Apple hasn’t publicly disclosed how many it has sold since early this year, when the number was just 2 million.

While Apple’s battle with Hollywood over what consumers want continues, Jobs focused on a number of product announcements Tuesday. He unveiled a new wireless version of iTunes, a series of upgrades to the iPod line and a partnership with Starbucks to promote Wi-Fi music downloads in the coffee chain’s stores.

And in a bid to boost sales of its iPhone, which at $599 has thus far sold fewer than 1 million units — primarily to tech-heads with lots of discretionary income — Apple slashed the price of the well-received device by one-third and discontinued a poorer-selling version with less memory that cost $499.

“We want to put iPhones in a lot of stockings this holiday season,” Jobs said.

Company also unveiled a new, and widely expected, version of the iPod called iPod Touch. It essentially has all of the features of the iPhone except for the phone itself. Jobs also announced that the device’s Wi-Fi connection will connect to a new version of the iTunes Music Store that will let users download songs wirelessly. A software upgrade to the iPhone will soon let that device do the same thing.

Though a few other devices that allow wireless music downloads are already on the market, none have been able to make a dent in iPod sales. With the addition of Wi-Fi, Apple has now countered one of the few advantages other device manufacturers have been able to claim.

“‘Finally,’ I know some of you are saying,” Jobs noted when introducing the feature.

Due to the large size of video files, TV shows and movies won’t be available for wireless download.

Starbucks partnership will see the coffee chain offering free Wi-Fi access to iPod Touch and iPhone users in some of its stores, along with a channel featuring songs that are playing in the store or available through its Hear Music service.

Jobs said Apple has been discussing a partnership with Starbucks for more than two years.

Starbucks will start rolling out the service to Wi-Fi enabled stores in New York and Seattle in October and continue with other major cities over the next year. CEO Howard Schultz said Los Angeles would be included in early 2008.

Jobs also showed off a new iTunes feature that will let users create their own ringtones for the iPhone. A select number of songs on the service will be available for users to edit into their own ringtone for 99¢ on top of the song’s price.

“We’re going to do ringtones in our own special way,” Jobs said. “Rather than let somebody else make your ringtones, we’re giving our users a custom ringtone maker.”

Service should spark a reaction among competitors in the already healthy ringtone biz, where pre-made ringtones typically cost $2.49.

Along with the iPod Touch, Jobs unveiled an upgraded version of the iPod Nano, the bestselling version of the device, that will play video for the first time.

(Michael Learmonth in New York and Michael Schneider and Josef Adalian in Hollywood contributed to this report.)

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