Rumor: Apple to Make Deal with the Studios for Digital Rentals

There are several items in this WIRED story that disturb me:

In the past, [Apple] has had considerable difficulty replicating the success it's had in the digital music business to iTunes movie downloads. Currently, Walt Disney is the only studio selling its new releases through the online store. Paramount, Metro-Goldwyn-Mayer and Lionsgate do offer a handful of films through the store, but only their older titles. Analysts attribute this dearth of content to the fact that Hollywood studios have typically resisted the idea of uniform pricing structures, which Apple favors for its iTunes store. As Blackfriars' Carl Howe notes, they've also tend to be "religious" about DRM and protecting digital content.

With the major record labels finally giving up on DRM -- mostly to stop the iTunes Store juggernaut -- you'd think the movie studios would be paying attention.

As part of the rumored 20th Century Fox deal, the studio is supposed to start including a digital file protected by FairPlay -- Apple's own flavor of DRM -- on its future DVD releases. This will allow buyers to transfer film content from the disc to a computer and iPod without the need for additional ripping software. Fox tried this approach earlier with its own DRM late last year, yet it was discovered that the files were incompatible with Macs and iPods. It's unclear whether new studio deals would see a similar arrangement.

I blogged about the Orwellian FairPlay being used to allow you to make legal copies you should've been allowed to make all along (of course, you may have been doing so already with such programs as Handbrake).

In the end, BusinessWeek suggests Apple may have made some significant concessions to push the bargaining foward. For one, the company could be paying closer to the $17 wholesale price the studios get from physical DVD sales by retailers. If true, it's also unclear how the company would handle that price hike (i.e., whether it would raise the price of movies in iTunes, as we previously reported, or take a loss and instead to try drive sales of Apple TV and video iPod players). Currently, new movies from Disney fall in at $14.99 on iTunes while older movies cost $9.99. Apple likely won't want to push prices much beyond that considering DVDs in retail are generally cheap.

$17 for a DRM'd digital copy of a movie is outrageous. Don't expect any consumer traction at those prices.

The good news is: it sounds like digital distribution will continue to be wide open for indies. Hopefully independent producers will start making some real dough outside the iTunes walled garden and show the studios how it should be done.

UPDATE: The deal is sealed.