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