Anxiety about doing business with Apple is nothing new. The music labels and television networks also worried that digital distribution of songs or TV shows through Apple would cannibalize their existing businesses. But ultimately, they took the plunge.
The label executives did so mostly out of desperation. Piracy was savaging their business, and Jobs looked like a savior. TV executives are looking for new distribution methods because they feel threatened by commercial-skipping technologies such as digital video recorders. But the motion picture industry doesn't have to grapple with the same level of threats.
Apple has won a few distribution deals with movie studios. Disney became its first partner in September, when CEO Robert Iger joined Jobs in unveiling the iTunes movie store in San Francisco. Jobs is Disney's largest shareholder, thanks to its acquisition of another company he ran, Pixar Animation Studios.
Paramount Pictures, Lions Gate and Metro-Goldwyn-Mayer Studios Inc. have since agreed to sell their older movies -- but not new releases -- through iTunes. The store offers more than 500 movies and has sold more than 2 million downloads.
"They're the most popular, successful platform in this space, so why wouldn't we want to enjoy part of their elegant, successful ecosystem?" said Douglas A. Lee, MGM's executive vice president of worldwide digital media.
One reason other studios have yet to sign on: Apple offers less for newly released films than rivals such as Wal-Mart Stores Inc. Apple buys new movie downloads for $14 to $14.50, then sells them for $14.99. In contrast, Wal-Mart pays the studio $15 to $18 for DVDs, which it sells in the stores for slightly more.
The studios fear that offering new releases through iTunes will cause Wal-Mart to retaliate by slashing DVD prices.
"Until they show success, there's no hurry for other studios to jump aboard," said Tom Adams, president of Adams Media Research. He believes the studios will ultimately overcome their qualms and do deals with Apple. But they're "nervous about the actual price."
That's why the studios are moving cautiously when it comes to Apple.
"You have to be careful about any one person taking the marketplace," said Amy Jo Smith, executive director of DEG: the Digital Entertainment Group, a consortium of consumer electronics companies, studios and music labels.
Still, there's little guarantee that Apple TV will succeed. The company won't say how many units it has sold, only that the number is in the hundreds of thousands.
Apple TV is what McGuire refers to as an electronic "beachhead," a first-generation product that accomplishes basic goals. As did the iPod, it will evolve as Apple learns what digital consumers want. Just last week, Jobs announced that Apple TV soon would play YouTube videos.
Indeed, Apple has sacrificed margins on Apple TV to gain market share, according to researcher ISuppli Corp. of El Segundo, which estimates hardware costs based on the price of components. The firm calculates that Apple collects a 20.7% profit margin on the $299 Apple TV, meager compared to the 40% to 50% margins on iPods. As movie downloads accelerate and prices drop, ISuppli predicts, Apple could succeed where others failed and sell 1 million Apple TVs by the end of the year, then 1.4 million in 2008.
Other industry analysts suspect Apple TV will follow the path of TiVo Inc., which pioneered the digital video recorder but has struggled to compete with generic versions from cable and satellite TV providers.
"Apple TV is not a mass-market pleaser -- it's a 1-million-person pleaser," said Forrester Research analyst James McQuivey. "Beyond that 1 million, where do you go from there?"
dawn.chmielewski@ latimes.com
michelle.quinn@latimes.com
