Service will make movies available for rent

Apple is set to break new ground with iTunes, offering movie rentals in a bid to rejuvenate that sluggish part of the otherwise boffo service.

Fox and Disney will be announced as partners in a major unveiling by Apple chief Steve Jobs at the annual MacWorld confab on Jan. 14, according to studio sources.

Move has long been expected by Apple watchers (Daily Variety, Sept. 5) and, in some respects, merely catches the company up with video-on-demand offerings from Movielink, CinemaNow, Xbox Live and others. But the imminent prospect of movie rentals on an iPod proved tasty food for thought during the holiday week, with observers immediately handicapping what the move portends for rivals like Blockbuster, Netflix and Amazon.

Apple’s two major studio partners could be joined by other distribs, perhaps Paramount, Lionsgate and MGM, which already make library titles available for purchase on iTunes. Rentals are expected to cost between $2 and $5 for a 24-hour period, with the price point ideally motivating consumers in the manner of 99¢ music downloads.

The Financial Times first revealed Thursday morning that Fox was entering into the rental initiative but did not say that other studios would join in. Sony, Universal and Warner Bros. are unlikely to participate for various competitive reasons.

Apple has been looking for ways to invigorate iTunes’ video business, which has been a far more modest performer than the music downloading segment. NBC U execs, before pulling the conglom’s programming off of iTunes recently, grumbled about the meager returns on their iTunes offerings.

Apple itself last disclosed video sales figures several months ago. At that time, it had registered 100 million TV downloads (at $1.99 a pop) and 2 million movies (for $9.99 and up). Those numbers are hardly insignificant but do not signal the paradigm shift that has hit the music biz.

A Forrester Research report issued Nov. 30 argued that Apple’s “appetite for a slice of the video pie has proven bigger than its reach,” indicating that only 19% of regular iTunes customers buy video, or just 4% of the total online population. The performance of Apple TV, the device that delivers online video to the living room, has been surprisingly flat given the must-have status of the company’s iPhone and iPod. The company hopes movie rentals will boost Apple TV’s fortunes.

One intriguing aspect of the rental deal, the Financial Times reported, is that studio partners will also start releasing DVDs using Apple’s FairPlay digital rights management software. That will make them easier to legally copy and play on computers or iPods, potentially making video a more central part of the iPod experience.

On a turbulent day on Wall Street, as traders grappled with unrest in Pakistan and gloomy consumer sales forecasts, Apple stock was down just a fraction to $198.57. Media congloms all shed about 1%-2% in value, tracking losses in the Dow.

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