Hollywood Holds Its Breath

The iPod -- and Disney's blessing -- could create a mass audience for video on the go

When Steve Jobs unveiled the much-anticipated video iPod in San Jose on Oct. 12, it was immediately clear that Apple Computer Inc.'s (AAPL ) latest gizmo will not transform movies the way the iPod and iTunes have revolutionized music. At least not right away. The new iPod, which has a bigger color screen and more capacity, plays short clips and TV series. And Apple has already started selling music videos and episodes of five Walt Disney Co. (DIS ) TV shows, including Desperate Housewives, for $1.99 through its iTunes Music Store.

But there were no movie moguls on hand to help Jobs unveil an online store for full-length features. Selling movie downloads is a lot more complicated than selling singles and albums. Studio bosses continue to fret about piracy, and they are loath to give up a distribution model that allows them to release the same movie over and over in different formats.

That's not to say Apple hasn't again stolen a march on its rivals. Along with the video iPod, the company unveiled a slimmer iMac with a remote control that allows people to use the new computer as a home entertainment appliance. And the Disney deal could lead other TV studios to offer content for $1.99. "Only Apple could have brought this together," says Van Baker, an analyst with Gartner Inc.

Still, the day when movies will be downloaded to iPods likely remains far off. Disney chief Robert A. Iger appeared at the Apple event and mused about the potential for the Net to "distribute more content to more people, in more places, more often." But studios are terrified of the digital piracy rampant in music. Apple has had no success convincing them to adopt the Fairplay digital rights-management technology used in iTunes. Apple did agree, however, not to allow people who buy videos or TV shows to burn even a single CD or DVD.

Besides, studios have more to lose than the music industry's top labels did when they cut their landmark deal with Jobs back in 2001. While Hollywood suffered through a funk this summer, the studios are in better shape than their music brethren, thanks largely to a decades-old distribution model that lets studios sell films many times over -- first via the box office, then as DVDs, and finally by selling the broadcast rights. As such, studios are balking at shuttering these release "windows" by letting Apple immediately release their latest hits. Even Disney won't make its TV shows available on iTunes until a day after they air.


There are technical constraints, too. Using Apple's updated iTunes software, customers can download an hourlong TV show in 20 minutes. At that rate, a full-length movie would take half an hour. And analysts say it would consume half a gigabyte of storage space -- or five gigabytes-plus, if the movie was shot in a high-definition version. As a result, experts say online movies will remain a tiny niche until U.S. consumers get speedier broadband connections, slicker home networks, and beefier hard drives. "Broadband needs to connect to pretty display devices in the living room, not just to PCs," says Jim Ramo, CEO of movie download site Movielink.

Jobs is well aware of the hurdles, which explains why the new iPod is a baby step to get a foothold without spooking the studios. But he may be betting that Hollywood will soon be ready to cut a deal. Disney's willingness to let Apple sell its TV shows is a sign that compromise may be in the air. And Iger has hinted that down the road, Disney may collapse the "windows" distribution model. "I think this is the start of something really big," Jobs said. "Sometimes the first step is the hardest one." Apple rivals, take note.

By Peter Burrows, with Cliff Edwards, in San Mateo, Calif., and with Ronald Grover in Los Angeles

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