- The Washington Times - Wednesday, September 6, 2006

SAN JOSE, Calif.

Could the company that helped catapult the legal music-download market with IPods and ITunes now kick-start the online movie market?

Rumors of Apple Computer Inc.’s plans to start a movie-download service gained momentum Tuesday after the company sent invitations to the media saying “It’s Showtime” next week.

The media event, scheduled for next Tuesday in San Francisco, coincides with the opening day of the Apple Expo in Paris.

Sources at several Hollywood studios confirmed Tuesday that they were in talks to sell their films through ITunes. However, substantial disagreements between studios and Apple remain to be resolved, and Apple’s movie service could start with a limited number of films, according to two studio executives who asked to remain anonymous because talks were still ongoing.

Speculation about the IPod maker adding full-length feature films to its online ITunes Music Store have swirled for months. Already, the Cupertino, Calif.-based computer company has become a multimedia powerhouse with its song and TV-show downloads. Analysts said it would be just a matter of time before Apple started distributing movies online.

Apple chief executive Steve Jobs became a board member and the largest stockholder at the Walt Disney Co. earlier this year through Disney’s acquisition of Pixar Animation Studios Inc., which Mr. Jobs also headed. That connection provides a natural toehold for Disney to be among the first to sign a distribution deal.

Apple’s first experiment with a full-length TV movie on ITunes was in March, when it started offering the Disney Channel’s original TV movie, “High School Musical,” for $9.99.

Apple and Hollywood studio representatives refused to comment on speculation of a movie-licensing deal.

Analysts and industry observers expect Apple soon to introduce a new IPod player with a widescreen display — which would be better suited for viewing movies.

Several studios are balking at Apple’s demands, including selling all films for one price and making all films available for download the same day they are released on DVD, according to studio sources.

Studios already sell films through other online services, including Movielink, CinemaNow and Guba. Deals with those companies allow the studios to vary pricing and availability.

Studios also have some concerns about the digital protection offered by Apple. Other deals use Microsoft Corp.’s Windows Media software, which more tightly controls how many times films can be transferred to various devices.

Studios want to retain more control over their product, believing, as the mantra goes, that “content is king” and that Apple needs big studio fare to sell any new video player more than studios need to sell films through ITunes.

One studio executive said Tuesday that deals being struck for a similar download service planned by Amazon.com are more flexible and allow for higher profit margins.

Studios are exploring new distribution methods for films. On Tuesday, Sprint Nextel Corp. announced a deal with four studios to offer full-length films on a “pay-per-view” basis on their mobile phones. The Sprint Movies service will offer films from Disney, Sony Pictures, Lions Gate and Universal Studios.

But watching movies meant for the big screen on a small portable display is not ideal. Neither is watching video on a computer screen.

An Associated Press-AOL Video poll released Tuesday found that only one online video viewer in five has watched or downloaded a full-length movie or television show. Also, fledgling online movie services such as CinemaNow and MovieLink have acknowledged that one of their biggest remaining challenges is the difficulties consumers would face if they were to try to hook up their televisions to play videos from their computers.

Apple, in the meantime, has been forging ahead to make itself the digital media hub for consumers. Its iconic IPod player is designed for music and video on the go; its ITunes store is a leading destination for getting digital content; and its Macintosh computers are touted for managing all the multimedia.

Josh Bernoff of Forrester Research is one of many analysts who expect Apple to enter the living room soon with a product designed to connect to televisions.

Mr. Bernoff predicted in a report in January that Apple was creating a new set-top box and will unveil video licensing deals. Such an integrated hardware and software package would rattle video distribution similar to the way Apple’s IPod-ITunes franchise transformed the music industry, he said.

“If Apple is successful here, they will really open up the online movie market,” said Rob Enderle, an analyst with the Enderle Group.

Analyst Tim Bajarin of Creative Strategies added that Apple’s next move is sure to be watched closely by its competitors, including Microsoft, which has said it plans to introduce its own branded online store and Zune portable media player later this year.

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