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Steve Jobs' Video Dreams


His magic has not extended to visual entertainment. Hollywood and cable companies aim to keep it that way

At last year's Consumer Electronics Show in Las Vegas, most of the 140,000 attendees were buzzing about the future of the cell phone—and how Apple Inc. (AAPL) had stolen the spotlight by announcing the iPhone at its own Macworld conference. But this year, the hot topic at CES is the future of video entertainment, and there's a lot less fear in the air about what Steve Jobs may have planned. "I have great admiration for Steve," says Comcast (CMCSA) CEO Brian Roberts. "But I also like cable's position as the video leader. We offer more movies, TV shows, and video content than anyone else—and we intend to expand our position."

It's a sign of the challenges ahead for Jobs & Co. While Apple's dramatic comeback thanks to digital music and the iPod reads like a Hollywood screenplay, Jobs' efforts in video-land won't follow the same script. Indeed, two years after Apple added video capability to its iPod line and began selling a smattering of shows and movies on the iTunes Music Store, its share in video remains minuscule.

Jobs is planning a major offensive to try to change all that, with at least some of the details to be announced at Macworld on Jan. 15. Most important, he plans to launch a movie rental service on iTunes for the first time. Apple is in furious negotiations with top studios to make their new releases available for the service, as well as for sale. BusinessWeek has learned that Apple is nearing deals with Warner Bros. (TWX) and Paramount (VIA), and has already secured deals with Disney (DIS) and 20th Century Fox. Apple is also planning a major upgrade of the slow-selling Apple TV set-top box.

But Jobs is having his troubles in Hollywood. While Apple persuaded the major record labels to sell every song on iTunes for 99 cents, the movie studios won't agree to such standardized terms. Disney and Fox have agreed to support the new rental service, but have different terms for when movies will be made available, Hollywood sources say. Lions Gate (LGF) may agree to let Apple rent its stuff, but not sell its newer releases. And Sony (SNE) and Universal, fierce Apple rivals, are unlikely to back Jobs at all.

CONTAINING APPLE

In the end, Apple will likely offer a respectable but not industry-leading selection of movies. New releases will cost $3.99 to rent, the sources say, similar to what Comcast charges.

That may be precisely the point: Hollywood wants to make sure Apple doesn't get any preferential terms. "We make a ton of money by offering video on demand with cable operators, and we're not about to jeopardize that to help Steve Jobs start a business," says one studio executive.

Meanwhile, the competition is pressing ahead. On Jan. 8, Comcast announced it is increasing its video-on-demand library from 1,600 movies to 6,000, a massive upgrade that should put Comcast even further ahead in the video market. It also announced the online service Fancast, which will offer more than 3,000 hours of streaming videos of TV shows from CBS, Fox, and others.

Of course, Jobs has succeeded in the face of massive challenges in the past. With sales of Macs and iPods zooming, he can afford to take his time and work on the next knockout. One possibility is that Apple might add a tuner to its TV product later this year. That way, the device could handle the tasks of a cable box and provide a portal for almost any video need—from obscure clips on the Net to the evening news. "The day that happens, Apple TV sales will take off," says American Technology analyst Shaw Wu. Perhaps. But whatever happens, Apple is sure to have plenty of competition.

Burrows is a senior writer for BusinessWeek, based in Silicon Valley . Grover is Los Angeles bureau chief for BusinessWeek.

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