Apple Computer Aims to Take Over Your Living-Room TV

SAN FRANCISCO -- Steve Jobs changed the way consumers listen to music. Now the Apple Computer Inc. chief executive wants to reinvent how they watch movies at home.

Tuesday, Apple announced a long anticipated thrust into living-room entertainment with a device that will display movies, television shows and other videos purchased over the Internet on television sets.

Apple unveiled the new device, which it is temporarily calling iTV, at an event here that also showcased a deal with Walt Disney Co. to offer movies for sale over the Internet, the first of a wave of licensing deals Apple hopes to strike with Hollywood studios for films. Apple also revamped its entire line of iPod portable gadgets -- trimming sizes and adding storage capacity -- in hopes of keeping sales of the device strong during the crucial holiday shopping season.

The iTV device, expected to sell for $299 when it goes on sale in the first quarter of next year, comes after years of efforts by high-tech companies to provide technology for moving content purchased on the Internet off computer screens and onto television screens that are at the center of home entertainment.

Such a device is regarded as key to enabling mass-market acceptance of the growing range of movies, television shows and other videos that media companies are making available online. While most such attempts to do so have met with middling results at best, entertainment companies believe Apple's track record in the music business with the iPod and iTunes Music Store could give iTV a better shot at success.

Apple CEO Steve Jobs announced a new movie deal and previewed the company's latest gadget at a San Francisco presentation. Rex Crum caught up with Greg Joswiak, Apple's VP of iPod products, to discuss the news.

In an interview, Mr. Jobs said the transition from DVDs that currently make up most of the home video market to online distribution wouldn't "happen overnight." "It takes years of investment," he said. Mr. Jobs compared the growing acceptance of movie downloads to the gradual consumer embrace of music downloads after years of product enhancements by Apple. "There's no reason why movies will be that much different."

Analysts said that even if iTV itself doesn't take off, Apple's new moves show it is serious about achieving with movies what it has accomplished already with music. "They announced their intent to take over the living room," said Gene Munster, an analyst at Piper Jaffray.

With the new products, Apple is upping its bet on entertainment services and hardware. The Cupertino, Calif., company is hoping for a new wave of users who opt for the convenience of buying movies over the Internet just as they have with music on the iTunes Store. In three years of selling music online, Apple cited market research yesterday showing that it's now the fifth largest retailer of music in the U.S., after Wal-Mart Stores Inc., Target Corp., Best Buy Co. and Amazon.com Inc. The iPod accounted for more than a third of the company's revenue in its most recent quarter and demand for new video products could help strengthen that business further, analysts say.

Apple said users will attach iTV -- a flat, square device that resembles Apple's Mac mini computer -- directly to their television sets and home theater systems through audio-video cables. The device will access audio and video files stored on a user's Mac or PC through a common wireless home-networking technology called Wi-Fi. Users will be able to navigate their movie and music libraries as they are displayed on a television set using an infrared remote control that connects to iTV.

Mr. Jobs said movies purchased from the iTunes Store will take about 30 minutes to download using a broadband connection, but viewing can begin less than a minute after downloading has started. Apple is the latest of a raft of new movie download services from companies like Amazon and Time Warner Inc.'s AOL.

The new movie service is kicking off with more than 75 Disney titles including "National Treasure," "The Princess Diaries" and "Shakespeare in Love." Disney animation classics like "Cinderella" and "Bambi" will also be available along with Pixar hits like "Toy Story" and "The Incredibles." Disney's big summer blockbusters -- "Cars" and "Pirates of the Caribbean: Dead Man's Chest" -- will be released on iTunes the same day they are released on DVD in November, as will all other future movie releases available on iTunes.

Apple said it would sell new-release movies at $12.99 during a period of preorders running up to the release and in the first week of release, and $14.99 after that. Older, catalog titles will sell for $9.99. That is cheaper than prices for DVDs, which typically start at retail at $17.99 for new releases.

People familiar with the situation said Apple will likely make very little or no profit on the sale of movies online, instead profiting from the sale of hardware, just as it does with the sale of music through iTunes.

In the same way that Disney jumped first in offering TV shows on the video iPod last year, it is making the opening move with movies. Launching with just Disney on board means that consumers will have only a limited selection of titles to choose from at first. But just as the number of television shows on iTunes grew last year, Mr. Jobs says he expected the other studios to "join over the course of the next few months."

When Apple first made television shows available for sale last October on iTunes, it had just five Disney shows. Now it has more than 220 shows from most of the major studios. Mr. Jobs said consumers had purchased and downloaded more than 45 million TV shows since that service was launched.

One problem for the other studios has been Wal-Mart. The retailer, which accounts for at least 40% of sales on new-release DVDs, has expressed concerns about the prices the studios offer Apple for iTunes movies since they are cheaper than DVDs. The worry for Wal-Mart is that Apple's new movie service may cut into its traditional DVD business. The studios are mindful of not upsetting Wal-Mart too much because DVDs remain a major revenue source, even if growth has plateaued. But at the same time, they are under pressure to experiment with download services.

People familiar with the situation say that the other studios want to get the fourth quarter behind them before jumping on board the Apple service. The studios make the bulk of their DVD sales in the fourth quarter.

Apple introduced an iPod nano with a new aluminum body, 24 hours of battery life and more than twice the music capacity of the previous generation of the device.

Disney CEO Robert Iger noted that the most popular TV show on iTunes had been "Lost." Yet the DVD of the second season of "Lost" did better than the first season. "That suggests to us that this (iTunes) is a platform that is bringing new viewers and heightening interest in DVD," he said.

In the wake of Disney's acquisition of Pixar, Mr. Iger has a formed a close relationship with Mr. Jobs, who sits on Disney's board and is the biggest individual shareholder. Mr. Jobs rejected any suggestion that Disney was the only studio on board because of Mr. Jobs' role at Disney.

"Disney's been the pioneer here," said Mr. Jobs. "It's really nothing to do with me being on the board."

Mr. Iger added that Disney offered TV shows for the iPod even before Mr. Jobs joined the board. "We were first with TV shows, now we're first with movies. That's all it's about for us," he said.

One drawback with Apple's movie store kicking off just with Disney is that the studio's track record in recent years has been spotty at best. After a tough run at the box office, the studio recently opted to slash the number of movies it makes, moving away from adult live-action movies so that it can focus its energies on Disney-branded and Pixar movies.