Jobs makes announcement at Macworld

After more than a year of deadlocked talks with major studios over selling their new releases in digital form on Apple’s iTunes marketplace, Apple chief exec Steve Jobs has instead gone the rental route, agreeing to the same financial terms as pioneering digital delivery services like CinemaNow, Movielink and Microsoft’s Xbox Live Marketplace.

That enables Apple to offer new releases from every major studio on iTunes as digital rentals (but not in download-to-own form) 30 days after the DVD release date. Move by Apple into movie rentals was expected (Daily Variety, Dec. 27), but it wasn’t clear until Tuesday that all of Hollywood’s majors were aboard.

Movie rentals will be available via iTunes and an improved version of the Apple TV set-top box, also unveiled Tuesday, that will pull content directly from a home’s high-speed Internet connection without relying on a computer.

In addition, Apple and 20th Century Fox have announced the first DVD release that will include a bonus copy of the movie that can be viewed on iPods and stored in a user’s iTunes library: “Family Guy Presents: Blue Harvest,” released Tuesday.

Tuesday’s announcement by Steve Jobs at the annual MacWorld tradeshow in San Francisco could entice more consumers to try digital movie rentals. The move poses the biggest threat to rental outfits such as Netflix and Blockbuster Online, which target tech-savvy users with their DVD-by-mail services and have only begun moving into instantly gratifying Internet delivery. And if Apple comes to dominate digital movie distribution as it has music, where its market share surpasses 80%, that could limit the prospects of other digital storefronts, such as CinemaNow or Microsoft’s Xbox Live Marketplace.

“ITunes will now be the benchmark for what other digital media services will be measured by,” said Paramount Digital Entertainment prexy Thomas Lesinski. “With the elegance of the iTunes solution and the large penetration of video iPods, you’ve got an ecosystem which has never really existed before.”

ITunes began selling digital movies from Disney, which counts Jobs as a board member and its largest shareholder, in 2006. But other studios remained unwilling to offer digital pics to Apple at a discount to the DVD wholesale price. The inventory on iTunes remained thin, with catalog titles from studios like MGM and Paramount eventually added. But Tuesday’s announcement changes everything.

“Apple in this case went to the industry’s side,” said Forrester Research analyst James McQuivey. “The industry was already comfortable with online rentals. The story today is that Apple has finally come around to everybody else’s way of doing things.”

Fear of undermining DVD sales is still a powerful motivator for studios when they make any decisions about Internet delivery. “The sell-through margins on DVDs are very high, and they do not want to cannibalize those,” said analyst Will Richmond of Broadband Directions.

New questions arise in the wake of Jobs’ MacWorld address: whether the 30-day window will continue to protect the DVD release, and whether studios will eventually loosen the terms on rentals, which can only be watched for 24 hours.

“We’re pushing for a five-day viewing window,” said Curt Marvis, CEO of CinemaNow.

Lesinski said he expects the terms of digital rentals to change over time.

“Our experience is that digital delivery is a really good business model that’s only going to get more broad,” Lesinski said. “That will include multiple price points and ownership models.”

No matter how successful iTunes movie rentals become, however, studios won’t likely abandon other digital delivery services for fear of turning Apple into a powerful gatekeeper with too much power over pricing, as it has become to the music biz.

“We’re interested in making great movies available in as many ways as possible,” said Jim Gianopulos, co-chair of Fox Filmed Entertainment. “We want to give people choices. I’d deliver a movie on a piece of toast if people would watch it that way.”

(Ben Fritz contributed to this report.)

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