ITunes adds movie rentals in PPV window

Fox will use Apple DRM to make digital copies playable on iPod

By Ned Randolph -- Video Business, 1/15/2008

JAN. 15 | UPDATED: Apple is offering movie rentals over iTunes in the pay-per-view window and is retooling Apple TV to allow users to rent titles directly from their TV in high-definition. (Click for our review.)

Studios offering their titles for rental on the new service include MGM, Lionsgate, 20th Century Fox, Warner Bros., New Line, Walt Disney Studios, Paramount, Universal and Sony.

As part of its deal with Apple, Fox also will incorporate pre-ripped files, dubbed iTunes Digital Copy, on Fox DVDs for transferring to an iPod., beginning with Family Guy: Blue Harvest.

ITunes rental downloads will last 30 days but must be played 24 hours after they are initially opened. The downloads will be compatible with PCs, Macs, iPods and iPhones, Apple CEO Steve Jobs said.

“We’ve learned what people wanted was movies. Movies. Movies. We weren’t delivering that. We’re back with Apple TV take two,” Jobs said at the 2008 MacWorld exposition in San Francisco this week. “It still syncs to your computer, but no computer is required.”

ITunes will launch 1,000 films by the end of February, 30 days after their DVD release.

Lackluster sales of the Apple TV have been attributed to its poor sound and visual quality. Jobs said the new version will be equipped with Dolby 5.1 surround. It also will play audio and video podcasts, digital photos and videos from YouTube.

Apple will ship free software upgrades to existing Apple TV owners. The newly refurbished Apple TV will cost $229.

“Buy TV shows and music right from your TV,” Jobs said. “And if you’re using a computer, it’ll sync back to your computer.”

ITunes rentals will cost $3.99 in standard-definition and $4.99 in high-def for new releases, whereas library titles will cost $2.99 in standard-def and $3.99 in high-def.

Although they are participating in the rental initiative, Sony, Fox and Warner do not offer their movies for sale on iTunes.

Paramount, which does offer library titles for sale on iTunes, will consider offering new release films for sale “when the time is right,” said Alex Carloss, executive VP and general manager of worldwide digital distribution for Paramount Pictures Digital Entertainment.

New Line execs said the studio struck the deal for film rentals with Apple now with the intention of signing on for film sales there later. In the interest of time and getting enough studios on board to make it worth customers’ time, it was simpler to first focus on rental, which is similar to the already established video-on-demand model.

“Let’s do VOD first and EST [electronic sell-through] later,” said Jim Rosenthal, president of New Line Television, which handles digital delivery of the studio’s content. “We were excited that so many of our competitors and colleagues are on board. This is an extension of the VOD business, where the consumer is in control. If you have a movie that a consumer really wants to watch, they can quickly on their TV.”

Warner Bros. Entertainment, which sells TV titles but not films at iTunes, said it will offer film rentals with the hope of expanding its offerings through Apple.

Warner spokesman Jim Noonan said that for now, the studio is keeping a balance between maintaining healthy sales of physical DVDs and answering the rising interest in digitally delivered entertainment.

Warner has been aggressively starting to offer its new releases day-and-date on DVD and VOD, Noonan said, but has not yet offered tentpole titles in this fashion, as they are still in the testing phase. “It’s our intention to grow our digital business without cannibalizing our packaged goods business,” said Noonan.

Universal’s return to the iTunes camp was somewhat of a surprise because the studio pulled all of its content from iTunes late last year over a pricing dispute.

Although the studio has no immediate plans to post movies for sale on the iTunes store, it is offering rentals of Evan Almighty, I Now Pronounce You Chuck & Larry and Knocked Up. The studio will be making more new releases and catalog titles available going forward, a studio executive said.

According to sources, Sony, which currently sells TV shows on iTunes, signed on to distribute films via rental rather than sale because it was appealing to existing studio and retail partners. Essentially, the 30-day window makes the online film rentals another PPV TV option. The source called it a less threatening way for DVD executives and retailers to accept offering films digitally, while still preserving the physical media business.

Despite Apple’s dominion over music downloads, Apple’s video competitors say that Apple’s entry into the digital video space could be a catalyst for growth of the entire pie.

“The digital distribution marketplace remains very, very, very small,” CinemaNow CEO Curt Marvis said before Apple confirmed it would offer iTunes rentals. “Depending on whose numbers you believe, we’re lucky if it’s one or two percent of the video marketplace. This is about creating a market right now. We see Apple’s entry into this business as a great sign and great step to creating the marketplace.”

Marvis predicted dominating video wouldn’t be as simple for Apple as it was for the company in the music space.

“Our perspective is we really don’t view it as their gain is our loss,” said Microsoft senior director of media and entertainment Ross Honey prior to Apple’s announcement. “I think that everyone’s focused on growing the digital distribution pie.”

Honey said Microsoft believes consumers will choose an Xbox 360 over an Apple TV for viewing movie rentals and points out that there are already 10 million Xbox 360 users versus 1 million Apple TV users. “That’s a substantial delta in the user base. We welcome them to VOD.”

Analyst Trip Chowdhry of Global Equities Research agrees. He said that until Apple invests in newer broadband technology, the iTunes user experience will be choppy and consumer adaptation limited—especially for high definition.

Instead of Wi-Fi technology, Apple should be working to incorporate a faster D2S Powerline technology used in Europe, he said.

Microsoft is reportedly working to implement the connection in its Xbox 360 platform, said Chowdhry.

“You can have all the integration you want, but if your experience is not good, people will try it but will they stick with it? It’s a big question mark,” he said.

He added, “Every Apple iTunes competitor has the same problem ... the whole industry is doing something wrong in the U.S.”

Susanne Ault and Jennifer Netherby contributed