Has Apple Actually Licensed Fairplay to Fox?

Posted by: Peter Burrows on January 09, 2008

That would seem to be the logical conclusion, given reports (first broken by the Financial Times on Dec. 27) that Apple has agreed to let 20th Century Fox include a Fairplay-compliant copy of its movies on its DVDs. The idea is that people who buy the DVDs would be able to rip them to iTunes, without having to monkey with often-illegal third party tools. Evidently, if this image posted at macrumors.com is legit, this will indeed be among Apple’s announcements at Macworld next week (Read more on this at Wired’s Epicenter blog, here).

But does this mean Steve Jobs has handed the keys to his coveted digital rights management technology--the one that has locked iTunes shoppers to iPods, and vice versa--for the first time? I have my doubts, and I'm not alone. Gartner analyst Mike McGuire wonders if Apple managed to cut the deal with Fox without actually licensing Fairplay to the studio (Indeed, he and others I've spoken to wonder why Apple didn't simply include a code with the DVD, that the owner could redeem at iTunes. That wouldn't involve any confusing encoding and decoding, and would probably be more intuitive for consumers--certainly for the millions who've grown used to using iTunes gift cards).

Even if Apple has licensed Fairplay to Fox, don't get too hopeful, DRM haters. This isn't the start of any massive strategic shift. Jobs isn't about to open the iPod and iTunes to competitors like Microsoft, Real and Sandisk. As he suggests in his "Thoughts on Music" memo last February, he wants Apple focused on its own products, not on dealing with licensees' complaints and problems, or on trying to get them to patch security holes as diligently as Apple does with its own products. (I still submit that despite his musings in that memo, he wouldn't gladly ditch Fairplay even if the labels agreed to let him sell their music without any protections. But they're not going to do that any time soon, anyway, so it's a moot point).

Rather, this is no doubt a far more targetted affair, designed to help the DVD-buying public get comfy with buying online instead. Never mind all the talk about Blu-Ray's great victory in the high-def DVD Wars. Many regular folks wonder--rightfully--whether the DVD is already heading to VHS-land, to be replaced by Internet distribution. But if they know they can play that new "Alvin and the Chipmunks" DVD on their iPod or iPhone or whatever other new wonders Apple has in store for Macworld, they don't have to worry that they're wasting their money. And of course, this could help Apple tap into the motherlode of video content, until the great digital migration occurs. After all, almost all of the music in iTunes' libraries comes from CDs, which are unprotected. But because that's not the case with DVDs, Apple's video strategy has had to survive on what Apple can sell on iTunes. As to whether this is good for consumers or the studios themselves, here's an interesting post.

One thing I haven't figured out is what these rippable DVDs will cost, and how they figure into talk that Apple will increase its retail price for all movies on iTunes to $15 (older movies now cost $10). As we reported a few days ago, Apple has agreed to pay the studios a few dollars more for their flicks, to essentially give them the same deal they get when they sell a DVD to Wal-Mart. That explains why they'd hike those prices to you and me on iTunes. But here we're talking about discs that work both as DVDs and as downloads. If I buy one of them at Wal-Mart, surely the retailer will demand its full cut. That would seem to leave only a few bucks for Apple. Will Jobs eat the difference? Or what am I missing?

TrackBack URL for this entry: http://blogs.businessweek.com/mt/mt-tb.cgi/