Report: Apple, Studios in Negotiations for Movie Downloads

Citing unnamed sources, Variety said iTunes might begin offering downloads by the end of this year. Such a deal would put Apple in a position to repeat its success with digital music downloads. iTunes has sold more than 1 billion songs, dominating the industry, since it launched its service and its industry-leading iPod MP3 player in 2001.

"There's probably truth to the fact that Apple has been involved in such negotiations. The holdup would be with the studios," Inside Digital Media Senior Analyst Phil Leigh told MacNewsWorld. "Quite plainly, they are capitalists and they want to maximize revenue. Right now, they make more off DVDs than box office sales." Digital downloads could erode DVD sales.

No Stranger to Hollywood

Apple CEO Steve Jobs is no stranger to Hollywood. He made a name for himself in the industry with the rise of Pixar (Nasdaq: PIXR) . The company made such a huge impact in the animation business that Disney (NYSE: DIS) acquired it for US$7.4 billion earlier this year. Jobs now has about $4 billion worth of stock in Disney -- and a seat on its board of directors.

Apple has already tackled television broadcast downloads as well. iTunes offers over 100 TV shows for viewing on a computer or iPod, and is the world's most popular online video store with over 30 million videos sold.

Apple has steadily been adding to its catalog of music and video. Apple added Fox programming in May and the Dave Matthews Band Catalog in April. Most recently, CBS joined the lineup with its series "Survivor," "CSI" programs, "NUMB3RS" and "NCIS."

Apple has also been making moves to offer exclusive content. In April, iTunes made the Red Hot Chili Peppers "Stadium Arcadium" available for digital pre-order. Apple sells the TV broadcasts for $1.99 per episode.

Pondering Pricing

Pricing has been a sore spot with the recording industry, and could come into play with Hollywood films as well. Jobs recently wrangled with music labels what wanted a bigger slice of the digital download pie. Some labels pushed Apple to change the 99 cents pricing model it pioneered.

Warner Music Group CEO Edgar Bronfman Jr. last fall suggested that Apple should not have a one-price-fits-all strategy. An emboldened Bronfman even suggested that Apple should give the labels a cut of iPod sales. Meanwhile, EMI Group CEO Alain Levy lobbied for higher prices for best-selling bands and discounts for lesser-known artists. Jobs eventually won the match, and the 99 cents model prevails. Rumors say Apple is proposing a $9.99 price tag for movies.

"Selling movie downloads for $9.99 sounds like a sweet spot," Leigh noted. "It's cheap enough that consumers are probably not going to fool around with circumventing piracy protection. If they sell it for $40 consumers, some people will try to circumvent that. Hollywood has to decide if the cost savings outweigh what they might lose by reducing the price."

Room to Grow

With terabyte-sized hard drives, Seagate Technologies CEO Bill Watkins believes downloadable movies are the way the world is headed. He has noticed that consumers want their commercial and personal content in their home, their hand and their car.

"A revolution of this scale hasn't been seen since the Pony Express was replaced by the telegraph," Watkins told MacNewsWorld. "We're right in the middle of this revolution because all this digital content has to be stored digitally and we provide the storage device to enable that to happen. In the end, there will be companies that look like the Pony Express and fade away and those who look more like the telegraph and prosper."