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Hollywood's uneasy embrace of Apple's 99-cent TV rental offer [Updated]

September 1, 2010 |  5:48 pm

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Only two major Hollywood television studios agreed to allow Apple Inc. to offer 99-cent rentals of TV shows -- a price that the device-maker hopes will spark sales of a new generation of its set-top box.

Walt Disney Co's Disney/ABC Television Group and News Corp.'s 20th Century Fox joined in Apple's long-anticipated announcement that it would begin renting episodes of such popular shows as "Desperate Housewives," "Grey's Anatomy" and "Glee."  The offering was announced in concert with the re-envisoned Apple TV, a smaller and less expensive version of the device that brings iTunes video content to the television, which now costs $99.

Fox issued a carefully worded statement indicating that its participation was a limited trial, lasting "several months," reflecting the deep divisions within the company over the wisdom of dramatically dropping the price to watch TV shows on Apple devices from as much as $2.99 an episode.

(Update 9:10 p.m. Peter Rice, chairman of entertainment for Fox Networks, issued a statement applauding the Apple TV initiative. "We're always looking to explore innovative and creative ways to reach and engage our viewers on digital platforms, which makes Apple a perfect partner," he said .)

Most major television producers, including CBS, NBC, ABC, Warner Bros, and Sony Pictures, aren't part of the 99-cent rental deal. Nor are powerhouse cable networks Showtime and HBO. Each has a vested interest in protecting their existing businesses, which brings billions of dollars into the TV industry through cable and satellite subscriptions and advertising revenue.

Alan Gould, an analyst with Evercore Partners, a Wall Street brokerage firm, wrote in a report that studios know they need to provide a reasonably priced, online version of their content or illegal downloads will become pervasive.

"However, that does not mean the studios have to provide the product at a long-term money-losing price," Gould wrote. "We recognize there will be some incremental revenue from downloads, but assume most viewership will be a substitution for traditional TV viewing and hurt the long-term TV business model."

Particularly worrisome to some major TV producers is the idea that offering commercial-free versions of a TV episode for just 99 cents will gut sales of DVDs. That's because renting an entire season of a popular show "CSI: Miami" through iTunes would cost less than $24 -- a fraction of the $50 or more consumers now pay for the DVD (or a season's pass on iTunes).

In addition to television shows, Apple TV also lets users rent movies at prices ranging from $2.99 for standard-definition library titles to $4.99 for high-definition new releases. At his newsconference, Jobs emphasized HD video, a strategy the company has followed in the iTunes Store as well, where buttons to buy or rent content in hi-def are front and center, while standard-definition options are tougher to find. That's a concession to studio demands that Apple push the more profitable versions of their content, according to people familiar with the matter.

Despite the concerns of many in Hollywood about Apple's clout and its emphasis on low prices, content creators will benefit if Jobs' firm is able to expand the nascent business for distribution of legitimate, nonpirated, digital content in the home.

"The studios or content owners know they get more revenue through DVD rentals," said Paul Verna, a media analyst with researcher EMarketer. "On the other hand, the DVD business is dwindling. i think this is a recognition of that."

 -- Dawn C. Chmielewski and Ben Fritz

Related:

Revamped Apple TV to offer 99 cent shows

Murdoch may be key to Apple's plan to offer 99-cent digital rentals of TV shows

Photo: Apple CEO Steve Jobs announced the release of the new iTV, which replaces the larger, more expensive version. Credit: Ryan Anson/AFP/Getty Images

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