News : Apple's iTunes sells movies on DVD release date

By Sue Zeidler

LOS ANGELES (Reuters) - Apple Inc said on Thursday it reached deals with top Hollywood studios to sell movies on its iTunes download service on the same day as the titles are released in DVD form, bringing its clout to a nascent market for video entertainment.

Apple shares rose more than 3 percent after the news as investors hoped the new movie sales would boost purchases of Apple's portable iPod media player and Apple TV, as well as fuel growth for iTunes.

Privately-held CinemaNow and Blockbuster Inc's Movielink already offer similar services for downloading movies on the same day as DVD release, but Apple's entry is expected to expand that market.

"Apple will increase awareness of digital downloads and it's clearly a good thing for the studios who want to offer viable digital alternatives," Craig Kornblau, president of Universal Studios Home Entertainment, told Reuters. "We think this is a game changer."

ITunes will offer new releases and catalog titles from Universal, 20th Century Fox, Walt Disney Studios, Warner Bros., Paramount Pictures, Sony Pictures Entertainment, Lions Gate Entertainment Corp, Image Entertainment and First Look Studios.

Movies available this week include "Juno," "American Gangster" and "I Am Legend." New titles will sell for $14.99 each and catalog titles for $9.99 each.

Apple launched a service for iPod and iPhone users to rent and download some movies earlier this year, but offering new releases could help it attract more consumers to video content on its devices, analysts said.

"It's actually a big deal, because when they were able to get parity (with CD release dates) on the music side, they were able to drive music sales," said analyst Shannon Cross of Cross Research.

Movies purchased off the Web represented 1.2 percent of the entire $36 billion paid movie industry market in 2007. That is expected to grow to 4.2 percent of the projected $40 billion market by the end of 2009, according to industry estimates.

BLOCKBUSTER, NETFLIX DROP

Apple's entry through its popular iTunes service could ultimately threaten the physical rental market led by Blockbuster and Netflix Inc

"This poses a big long-term competitive question for Netflix and Blockbuster," said JP Morgan analyst Barton Crockett.

Shares in both companies fell more than 3 percent.

Blockbuster spokeswoman Karen Raskopf said it hoped Apple would help create a larger market that would benefit its own Movielink service.

Netflix declined comment on Thursday, but has said it expects to lead the market for movies delivered over the Web, despite competition from Apple and Amazon.com Inc.

The biggest challenge to such services is that most viewers do not have a simple way of taking a movie download and watching it on a television set rather than a computer screen.

Apple has sought to bridge that gap with its Apple TV hardware. Netflix will soon roll out a set-top box with LG Electronics Inc and said it will announce three more partnerships to let viewers watch films streamed from the Web to TV. Microsoft Corp is widely expected to be one of those partners.

David Cook, CinemaNow's chief operating officer, said his company was also focused on getting content to television.

News Corp owns 20th Century Fox, while Viacom Inc is home to Paramount. Universal Studios is part of NBC Universal, which is controlled by General Electric Co.

Apple closed up $6.05 at $180 on Nasdaq. Netflix shed 3.1 percent to $31, while Blockbuster fell 3.4 percent to $2.82.

(Additional reporting by Michele Gershberg, editing by Dave Zimmerman and Andre Grenon)