Apple Nears Deal for Feature Films on IPod
Thursday, September 7, 2006
Apple Computer Inc. will soon begin selling feature-length movies online for viewing on its iPod devices, according to Hollywood sources, as the company hopes to duplicate its success with selling music through its iTunes digital store.
The service could be announced as early as Tuesday, when Apple has scheduled a "special event" of an undisclosed nature.
Apple's plan has roiled relations between Hollywood studios and big-box retailers such as Wal-Mart Stores Inc., which sell millions of DVD movies and see Apple's online distribution as a threat, said sources who spoke on condition of anonymity because the negotiations were ongoing. As a result, most of the studios are not joining Apple in its rollout but may join later.
The major studio fully on board is Walt Disney Co., for which Steve Jobs, an Apple co-founder, sits on the board of directors. The Disney studios include Touchstone Pictures and Miramax Films, and the group's releases include the "Pirates of the Caribbean" movies, the "Scary Movie" series and "Finding Nemo." It is unclear whether all Disney studios will supply movies to iTunes initially.
Executives of Vancouver, British Columbia-based Lionsgate Films said in an investors conference call this month that their company would begin selling movies on iTunes by the end of the year. Lionsgate is a small, independent studio but has produced the current box-office hit "Crank," as well as the "Saw" horror hits and the Showtime television series "Weeds," which iTunes already sells.
Other studios, such as Universal Pictures and Warner Bros., are not participating in the initial iTunes movie rollout, as details regarding movie pricing have not been worked out. Analysts are speculating the movie downloads could run as much as $14.99 per film.
Apple sent e-mails Tuesday inviting members of the media to an event in San Francisco on Tuesday. The invitation includes no specifics but hints at its purpose by showing an Apple logo in front of crossed searchlights and the slogan "It's Showtime."
Even though Apple's iPod was not the first -- nor, some argue, the best -- digital music device, the iPod and the iTunes Music Store kick-started the legal online music business by introducing an attractive, easy-to-use player and a simple, affordable way to buy songs. Analysts estimate that nearly 60 million iPods have been sold and 1 billion songs have been bought.
Apple added $1.99 video downloads of television shows and sporting events to its iTunes service in October, and the venture has experienced modest success. For example, ABC reports that more than 3 million downloads of its hit drama "Lost" have been sold on iTunes. As Apple struggled to fill holes in its music library, complicated digital-rights issues have been keeping iTunes' video library thin.
Though sales of digital songs through iTunes and other online services bolstered a music industry crippled by illegal downloading and high CD prices, Apple's reluctance to vary its 99-cent pricing has rankled some of the major record labels.
Apple's movie plans face similar resistance in Hollywood, which partly explains why most major studios have not signed up to contribute to the new iTunes service. The major movie and television studios have made billions of dollars on sales of DVDs over the past decade -- studios now get more money from DVD sales than from box-office receipts -- and are hesitant to disrupt the revenue flow by offering movies for sale online. The studios also would like to be able to vary online movie prices.
To further complicate matters, Wal-Mart is talking to movie studios and technology companies about the possibility of offering its own movie-download service, a company spokeswoman said.
So far, Apple's video offerings have been limited to half-hour and hour-long television shows and edited versions of sporting events. The iPod with the most storage space-- 60 gigabytes -- holds 15,000 songs or 150 hours of video. Storing a number of two-hour feature films would require even more space on the iPod's hard drive, so it is possible that Apple will roll out a new iPod with greater capacity. Also, the iPod's current 2.5-inch screen may prove too small for viewing feature-length movies, so a larger-screened iPod may be in the offing, as well.
Apple makes little money on song sales -- as much as 70 cents per song goes to the music company that holds the rights and to the musicians in royalties -- but the company has used iTunes to propel sales of the iPod, which costs as much as $399. Apple shipped more than 8 million iPods in the quarter ended in July, a 32 percent increase over the previous year, the company said.
In a note to investors, Shaw Wu, an analyst with American Technology Research Inc., said he anticipates that Apple will also use the Tuesday event to roll out an upgrade to the iPod Nano player and an Apple "smart phone."