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Movie studios fear the sequel to iPod

TECHNOLOGY

They see risk that new Apple TV signals effort to control distribution.

June 11, 2007|Dawn C. Chmielewski and Michelle Quinn | Times Staff Writers

Some movie fans hope Apple TV will do for Internet video what the iPod did for digital music.

That's precisely what some Hollywood executives are afraid of.

The device from Apple Inc., which debuted this spring, aspires to bring movie downloads from the geeky fringe to the living room. Touted as elegant and easy to use, Apple TV lets movies and TV shows bought through Apple's iTunes online service -- plus, later this month, videos from YouTube -- pass from computers to television sets. It also lets users watch their digital photos and home videos on their TVs.

But despite Apple TV's promise, some of the biggest movie studios won't sell their films through Apple's iTunes store. They fear that the Cupertino, Calif., company will come to dominate online distribution of movies as it now controls more than 70% of the digital-music market in the United States.

If it does, that could drive down the prices of newly released DVDs, which is great for consumers but bad business for the movie studios. Even more threatening to the studios is the possibility that iTunes could kill the premium they hope to collect for the new generation of high-definition movie discs.

These concerns about Apple TV have kept most of the major movie studios from signing deals to sell films through the companion download service, iTunes. Missing are movies from Sony Pictures, 20th Century Fox, Universal Studios and Warner Bros.

So far, only Walt Disney Co. has ponied up new releases while Paramount Pictures Corp. and a few smaller studios have made their older catalogs available to Apple.

"As a long-term business matter, Apple has to get all the studios feeling good about the product and what they're doing with iTunes," Gartner Inc. analyst Mike McGuire said.

Movie executives, though, are worried about the here and now -- and how offering inexpensive movie downloads through Apple could hurt their sizable DVD businesses.

Apple already changed the way the music industry does business. For years, record labels were able to keep prices for albums on CDs at around $13 -- that is, until Apple persuaded label executives to let shoppers buy individual songs online for 99 cents as an alternative to downloading free, pirated tracks on file-sharing networks. Apple doesn't need to make much money selling music because it sells so many high-margin iPods -- more than 100 million to date.

The studios fear Apple is using a similar strategy with movies: Sell them for cut-rate prices so people buy more hardware. Senior studio executives say Apple could turn movies into a commodity.

That would turn the home-video business on its head. The studios have managed to keep the price of a DVD pretty constant in the decade since the DVD player was introduced. In 1997, consumers paid about $19 on average for a major film released on DVD, compared with about $22 today, according to the DVD Release Report, an industry trade publication based in Escondido, Calif.

With DVD sales growth slowing, Hollywood is now pushing high-definition Blu-ray and HD-DVD movie discs that cost an average of $22 to $23. That makes studio executives less than enthusiastic about embracing new, inexpensive digital distribution that would depress the price of new releases.

Home video purchases and rentals brought in $24.9 billion last year, according to Adams Media Research. In comparison, the firm said people spent $29 million for downloaded movies and $83 million for TV shows last year. Price isn't the only concern. Studio executives are using Apple's desire to offer more film downloads as an opportunity to press broader concerns about digital piracy.

Their major gripe is with the iPod, which plays pirated versions of movies and television shows that can be obtained at illicit file-trading sites or transferred to computers using software that pries the content off DVDs. Piracy experts say Apple TV could work the same way to transfer bootlegged movies and shows from the computer to the TV.

Apple says it trusts its customers to do the right thing, but movie studios don't think that's enough. So some are holding up licensing deals, trying to pressure Apple to take more aggressive steps to combat piracy. For example, they want Apple's devices to look for a unique identifying code, known as a watermark, on digital video to certify that it is a legitimate copy -- and to refuse to play the film when that watermark is absent.

"Our position is, if you want our content, you have to protect our business," said a movie-studio executive, who, like every other entertainment executive interviewed for this article, requested anonymity because he is involved in negotiations with Apple.

Apple executives declined to comment for this story because of the continuing talks. Speaking at the D: All Things Digital conference last month, Chief Executive Steve Jobs jokingly referred to Apple TV as the company's "hobby."

"The reason I call it a hobby is a lot of people have tried and failed to make that a business," he said.

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