Apple moves in on movies
Why is notoriously secretive Apple giving sneak peaks at its new movie gadget? Fortune's Peter Lewis says the company may be trying to show Hollywood that it intends to dominate movie downloads -- and the studios better cooperate.
By Peter Lewis, Fortune senior editor

NEW YORK (Fortune) -- Always the online media innovator, Apple Computer has been the front-runner in online music, and is quickly following suit with television downloads. But Steve Jobs and company are now taking on a new frontier: movie downloading. At a media event earlier this month, Jobs unveiled iTunes 7.0, which features the Apple iTunes Movie Store and other upgrades to the omnipotent software.

At the same time, Apple (Charts) gave a sneak peek at a new gadget code-named iTV, which will go on sale next spring for $299. Assuming it works as advertised, the iTV box will be the missing link between the Mac and the TV, allowing movies downloaded from iTunes to be streamed wirelessly from the PC or Mac to the big-screen TV in the other room. (It also raises tantalizing speculation about WiFi-enabled video iPods, but that's another column.)

Read Peter Lewis' review of iTunes 7.0.

Why did Apple, notoriously secret about future product plans, show off the iTV prototype months ahead of availability? My guess is that it was a warning shot across Hollywood's bow. Apple was demonstrating that it does movie downloads better than anyone else at this point, and that it will only get better. The message: Apple intends to dominate movie downloads just as it now dominates music and TV shows.

The key issue is pricing. Apple wanted all movies to sell for $9.99, just as it pressed for all music singles to be sold for 99 cents. The studios would not stand for that, though, because they sell DVDs for a lot more than that (typically $14 and up), and big DVD retailers like Wal-Mart (Charts) and Best Buy (Charts) would then demand equal terms with Apple.

So Jobs compromised just a bit: Most older movies will sell for $9.99. The price goes to $12.99 for certain Disney classics like Bambi and Cinderella, along with new movie pre-orders and new movies in the first week of availability. After that, the new movies will be $14.99.

The studios still hate that, because they think digital movie downloads should be priced higher than physical DVDs, even though there are no physical production, distribution or inventory costs. They should cost more, the reasoning goes, because of the added convenience to consumers.

Jobs will hold firm on pricing, and now he has evidence from Disney that there is demand, and that legal downloads can add to studio revenues. The studios can see the allure of iTunes today compared to disasters like Amazon.com's (Charts) Unbox or MovieLink, and extrapolate that iTunes will become even more popular when Apple releases new video iPods and the iTV set-top box. So, Apple is saying, resistance is futile. Assimilation is inevitable.

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In last week's review, Peter Lewis described Amazon's Unbox movie download service as a horror show. Read the review. Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.