Hollywood Holds Its Breath

When Steve Jobs unveiled the much-anticipated video iPod in San Jose on Oct

12, it was immediately clear that Apple Computer's 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 TV shows.

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.

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.

Hurdles Ahead



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 US 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 In New York in BusinessWeek. Copyright 2005 by The

McGraw-Hill Companies, Inc