Will Apple Blow Past Netflix, Amazon and Microsoft With A Fox Deal?

Articles Thursday in the Financial Times and The Wall Street Journal reported that Apple (AAPL) has signed a deal with the 20th Century Fox Pictures unit of News Corp. (NWS) to develop a rental service where Fox movies can be downloaded from Apple’s iTunes store and viewed on a computer for a limited amount of time. (News Corp. owns Dow Jones, the publisher of my blog.)

The FT and the Journal, citing anonymous sources, say that Apple’s code for preventing copying of music and movie files from iTunes, which goes by the name of “Fairplay,” would not only be used to control the rental period of the movie file, but would also be used by Fox for the studio’s DVDs, making Fox DVDs capable of being copied to Macintosh computers. “A digital file protected by FairPlay will be included in new Fox DVD releases, enabling film content to be transferred or “ripped” from the disc to a computer and video iPod,” goes the FT article.

Folks seem to be enchanted with the deal, and eager to read the tea leaves. In the FT article, a consultant reflects on the possibility Apple could sign up other major studios (aside from Disney (DIS)) for major new movie releases through iTunes: “‘Fox and potentially other ­studios are coming around to the idea that there is nobody out there to challenge iTunes,’ said Jonathan Weitz, a principal with IBB Consulting, which focuses on cable, media and mobile companies. “This deal is a sign that media mobility is coming to the mainstream.’”

Over on Silicon Alley Insider, Dan Frommer writes that Akamai (AKAM) should be a beneficiary of increased bandwidth usage from video rentals. He also thinks the ability to “rip” copies of Fox movies to a computer would heighten the appeal of DVDs and pay off for Fox in increased sales of discs. The losers in any deal would be Blockbuster (BB) and Netflix (NFLX) and Amazon.com (AMZN), with their respective movie download or rental businesses. Frommer also offers that if Apple does use its “Fairplay” code for movie rentals, it puts further pressure on Microsoft (MSFT) and its own attempts to proliferate digital rights management code.

Arik Hasseldahl at BusinessWeek wonders if Apple will succeed where the online rental efforts of Netflix and Blockbuster have gotten only lukewarm reception. He also wonders “whether or not the AppleTV device will get a big software upgrade that gives users a direct interface to the iTunes Store, allowing direct rentals (and purchase) from the comfort of the living room couch,” with such features possibly being key to a service’s appeal.

The market weighed in Thursday, too: Apple shares rose almost to $203 today but finally succumbed toward the end of the session to close down .37% at $198.21.

Comments

[borisb]

Netflix is morphing into something very big.

[w wong]

there is still huge gaps between the TV users and PC users, though they are viewing the same content. For casual viewing, it is fine for using the PC with 19"/20" LCD, nevertheless, for lot of movies, it would be more enjoyable to be viewed using a bigger and better screen (TV) as well as better atmosphere (viewing with friends or families).
Hence, I think it is a logical move to connect APPLE iTV to the iTUNE such that the gap between PC viewers and TV viewers can be bridged.
For Netflix and Blockbuster, there is certainly impact to the mailing and brick and mortar type of services, nevertheless, with the management team always need to balance the current business, revenue Vs new business revenue, it would be similar situation to the current paper news publisher in which they developed the online revenue to cover the shrinking revenue on paper, nevertheless, such bipolar focus in two extreme won't help anyone of them converted themselves to other Google.

[Tom B]

"Netflix is morphing into something very big."

The apatosaurus was also very big.

Seriously, though, the future of the movie business is hard to call. Continued success for TiVo seems unlikely; they are bleeding cash. Growth for Netflix is possible. Renting of High Def Blu Ray discs seems one way things could go (I think we all know HD DVD is a non-starter) The continued existance of AMZN UnBox and XBox Video seems extremely clouded. UnBox does not support portable devices and XBox consoles are wholly unsuitable for movies due to noise issues.

Thus, Apple TV MAY represent a decent compromise. Very high convenience factor, once set up. But not true HD, at this time due to bandwidth constraints.

[borisb]

Netflix household penetration in northern california
is nearly 20% and still expanding. this implyies a still growing US opportunity of 22 million households. Now that BBO is retreating....it appears that netflix will go back up to the >80% marketshare it usually has had for several years. at this time NFLX management thinks the opportunity might be 30 million-ish households. With netflix subs around 7.5 million seems like there is room for plenty of upticks in sub count. Also based on Apple's conflict of interest due to hardware sales, it seems Netflix has the Hollywood Studio best interest at heart.