Apple Closes In on Hollywood

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Sources say Warner Bros. and Paramount are mulling agreements that would allow both sales and rentals. Fox has already agreed to offer both, but only the rental deal is set to be announced Jan. 15; the two sides are working out final details on the sales arrangement. Lionsgate, meanwhile, is considering a deal to let Apple also offer its films for rental. Even Sony (SNE), a longtime Apple rival in consumer electronics, is said to be contemplating a deal to sell its movies through iTunes. Among the major studios, only Universal, whose parent company NBC (GE) has yanked its TV shows from iTunes over a pricing dispute, is not discussing a movie deal with Apple, according to sources.

Coming to Terms

Getting the studios to give Apple their movies for online rentals has been tricky. Jobs wants new movies available for download "day and date" with DVD releases so that iPod users can rent them the same day the DVDs become available at Blockbuster, Wal-Mart, and other rental venues. Studios generally won't make their latest releases available for rent electronically—mostly through video-on-demand services on cable systems—until about 30 days after the DVDs hit store shelves.

Fox appears to have backed down from that 30-day requirement, but other studios are still studying the issue. Warner Bros. is said to be contemplating Apple's demand. The studio already allows some movies to be offered day and date with DVD release through Microsoft's (MSFT) Xbox video service. But Disney, of which Jobs is the biggest single shareholder and which is the only studio to allow new movies to be sold through iTunes, is said to have balked at allowing day and date rentals of its movies.

The biggest challenge for Jobs may be whether, and when, he might be able to get all the studios to back common terms on pricing. Industry and marketing experts cite Apple's ability to communicate a simple 99¢-per-song pricing model as key to iTunes' success. But despite Jobs' love of simplicity and big theatrical flourishes, sources suggest he may need to be content with a trickle of movie studio deals over the first half of 2008. Compared with those cats in the music industry, it seems the felines in Hollywood are a lot harder to herd.

With Peter Burrows in Silicon Valley.
Grover is Los Angeles bureau chief for BusinessWeek.