iTunes movies questioned

Apple's recent deal with Walt Disney to offer full-length films as digital downloads via the iTunes Music Store could prove ill for both companies if other Hollywood studios view the deal as a competitive move, rather than an opportunity. A new report from the Los Angeles Times highlights the fact that Apple has only Disney on board offering full-length movies downloads -- a total of 75 films -- and that the Cupertino-based company's movie pricing currently undercuts major retailers such as Wal-Mart and Best Buy. Rival studios may also view the deal as a close-knit partnership between Apple and Disney, flagging the duo as a major competitor in the entertainment industry. Regardless, other studios are reluctant to come on board with Apple due to fears of alienating brick-and-mortar retailers, which account for half of Hollywood's revenue via DVD sales and rentals. "The other studios want to wait and see how it goes," said independent media industry analyst Harold Vogel. [corrected]

A recent report claimed that Wal-Mart was threatening Hollywood studios with retaliation if they went into business with Apple to sell full-length movies online, which the retail colossus fervently denied in a statement.

The other studios may also be holding out on Apple because they have already joined Amazon's Unbox service, which offers flexible pricing from studio to studio that is less likely to anger major retailers while also allowing studios to release movies online at their choosing -- such as after the first or second week of sales at retailer locations, when things tend to slow down. Amazon and Tivo are also in talks about allowing consumers to automatically transfer online movie purchases to their TiVo boxes, which could boost Amazon's online movie sales and compete with Apple's recently announced iTV device -- which will also stream downloads to a TV via a wireless connection.

Additionally, Disney's decision to plunge into the online movie business with Apple raises questions about the relationship between Apple CEO Steve Jobs and Disney, as Jobs also happens to be the largest shareholder of Walt Disney. Corporate governance experts suggest that Jobs has a conflict, and that Disney needs to play it safe.

"It's appropriate that both companies be concerned about the potential conflicts of interest when you have a shareholder and board member who also has an executive position at a customer, supplier or business partner," said Kirk Hanson, director of the Markkula Center for Applied Ethics at Santa Clara University.

Still, if Apple's movie download sales explode the doubts surrounding Apple and Disney's latest partnership will quickly disappear, likely resulting in further deals with other studios, according to the report. Disney recently announced that it had sold 125,000 movies via iTunes which brought in $1 million in revenue, and predicted that the company will make $50 million in sales during its first year in the business of offering movie downloads.

by MacNN Staff