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Apple Said to Prepare 99-Cent TV Shows to Fend Off Netflix, Hulu

Apple Inc., seeking to fend off rivals such as Netflix Inc. and Hulu LLC, is in advanced talks with News Corp. to let iTunes users rent TV shows for 99 cents, said three people familiar with the plan.

Viewers would be able to rent programs from News Corp.’s Fox for 48 hours, said the people, who declined to be identified because the discussions aren’t public. CBS Corp., NBC Universal and Walt Disney Co. -- where Apple Chief Executive Officer Steve Jobs is a board member and the largest shareholder -- also are in talks about joining the effort, the people say.

The content deals would give Apple users access to some of the most-watched shows on TV and increase the appeal of its devices, including the iPad, iPhone and iPod Touch. Adding programming also would build on iTunes’ role as the biggest retailer of music and mobile applications, and help Apple ward off companies like Netflix, Amazon.com Inc. and Hulu, which offer their own online video services.

“This is a smart move by everyone,” said David Bank, an analyst at RBC Capital Markets in New York. “Something like this a la carte rental service is an incremental opportunity”

Episodes will be available to Apple’s rental service within 24 hours of their air dates and will be commercial-free, one of the people said. Apple plans to hold a San Francisco event Sept. 1, the company said today in an e-mailed statement. The event, which comes three weeks ahead of the new prime-time TV season, is where Apple will unveil the service and an updated line of entertainment products, two of the people said.

Apple TV

Apple will introduce a new version of the Touch with a higher-resolution screen -- similar to the display featured on the iPhone 4 -- and a $99 version of its three-year-old Apple TV set-top box, one person said. The new Apple TV, which will have a smaller hard drive than the earlier version, is aimed at letting people stream content from iTunes, the person said.

Apple doesn’t comment on rumor and speculation, said Tom Neumayr, a spokesman for the Cupertino, California-based company. Fox’s Julie Henderson, CBS’s Dana McClintock, NBC’s Rebecca Marks and Disney’s Jonathan Friedland also declined to comment. Burbank, California-based Disney owns ABC.

Fox and ABC are closer to reaching an agreement than CBS and NBC, which may not take part in the Apple event, the people said. CBS and NBC would add programs to the rental service if terms are reached, they said.

Apple rose $2.96, or 1.2 percent, to $242.89 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have gained 15 percent this year.

New Direction

The TV service is a new direction for Apple, which is focusing on using video to sell mobile devices rather than to break into living rooms, the person said. Currently, iTunes customers are required to buy TV episodes, while films can be rented or purchased.

“This takes Apple out of the position of making consumers decide to either buy or not view,” said Michael Gartenberg, an analyst with San Mateo, California-based technology research firm Altimeter Group. “It makes Apple much more competitive with services like Hulu.”

The a la carte rental plan follows an abandoned effort to create a subscription television service, said two of the people. Media companies didn’t want to endanger revenue from cable providers such as Comcast Corp. and Time Warner Cable Inc., the people said.

‘Incremental Revenue’

A subscription service with Apple would have jeopardized the TV networks’ chances of getting higher retransmission fees from TV-system operators, RBC Capital’s Bank said. The four big broadcast networks -- Fox, NBC, CBS and ABC -- receive about $250 million a year in so-called retransmission fees industrywide, he said. That number will balloon to several billion dollars within five years, Bank said.

“If you’re running a TV network, you don’t want to upset the existing ecosystem broadly by starting a rival subscription service with Apple,” he said. “You want to look for ways to drive incremental revenue.”

Apple TV was introduced in 2007 as an Internet-connected device that let people view content purchased from the iTunes store, as well as material like videos from YouTube or pictures on Flickr. Sales of the device haven’t matched those of Apple’s other products, including the iPhone, iPad and Macintosh.

In June, Jobs reiterated a statement that television is a “hobby” for Apple. The market for set-top boxes is heavily subsidized, diminishing its appeal to new entrants because people aren’t willing to pay a premium for more innovative devices, he said at the time.

Time Warner Inc.’s Warner Bros. studio, the biggest outside producer of broadcast shows, is likely to grant the rights to Apple for TV series in its library and older episodes of current shows, one person said.

To contact the reporters on this story: Peter Burrows in San Francisco at pburrows@bloomberg.net; Sarah Rabil in New York at srabil@bloomberg.net; Adam Satariano in San Francisco at asatariano1@bloomberg.net

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