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Apple (Nasdaq: AAPL) has signed a deal 
with News Corp.'s 20th Century Fox to allow Apple to rent the latest Fox DVD releases via downloads from the iTunes Store, which will be playable for a limited time, according to a report in the UK's Financial Times. In addition, Fox will provide a FairPlay-protected file with its DVDs which will let consumers copy the content to an iPod or iPhone for mobile viewing, according to the report.
News Corp. declined to comment on or confirm the accuracy of the report to MacNewsWorld, and Apple did not respond to requests for confirmation and additional detail. The Times report cited only a "person familiar with the situation."
In all likelihood, if the report is indeed accurate, both Apple and News Corp.'s Fox will keep the deal under wraps at least until Apple CEO Steve Jobs has a chance to reveal it at the Macworld Conference & Expo during his keynote speech on Jan. 15.
Potentially Groundbreaking
Apple has been selling movies and television shows via its iTunes service, which allows users to move the content to video iPods and iPhones for playback on those mobile devices. It hasn't had a rental service in the past for songs or videos, partially because Jobs has long claimed that consumers would rather own their media -- music in particular -- than rent it.
Plus, the movie industry has demanded strict digital rights management systems be built into online video rental services to prevent piracy. Such systems have also had a side effect of stifling the market for rental solutions by making it harder for consumers to navigate technical hurdles in order to enjoy downloadable media.
The owners of video-capable iPods and iPhones have been able to rip DVDs and create files capable of running on their mobile devices, but the process requires third-party software and can take hours. Plus, such acts fall within a hazy area regarding the legality of ripping a DVD that a consumer owns and then transferring a reformatted version to another device that the same consumer owns. Sharing such a video with a friend treads even deeper into piracy waters.
The AppleTV Connection
"This represents the future of the movie rental business, and if Apple is serious about AppleTV -- they are rumored to have a refresh out next year -- they'll need this [Apple-Fox deal]," Rob Enderle, principal analyst for The Enderle Group, told MacNewsWorld.
"Apple tends to have a cow when stuff like this is leaked, so I would guess they may be less likely now to have this announced at Macworld than they were -- they like to punish partners who leak -- but I'd expect something in the first half of the year regardless," he added.
Wave of the Future
Most industry analysts believe there's a move away from physical DVD rentals, trending toward online movie rentals, despite the hesitation of the movie industry to adjust and risk new business models. The DVD format has been extraordinarily successful for the movie industry, helping turn movies that failed at the box office into profitable ventures. For consumers, it's all about ease of use and low prices, which is why many prefer to rent movies than buy them.
"As we've been saying, ultimately the online rental model should be something they're looking at, because not everyone is a cinephile who wants to own every movie they see. I think the rental model is much more useful to many folks, otherwise we wouldn't be seeing this dip in DVD sales that we've noticed in the last couple of years," Mike McGuire, a vice president of media research for Gartner (NYSE: IT), told MacNewsWorld.
Plus, broadband is getting more penetration into the consumer market at the same time people's Mac and PC computers are becoming more capable of playing movies. As consumers are increasingly able to make sense of and work with DRM time stamps, the opportunity for online rentals is growing, he added.
"Not having to go to the Blockbuster was the core to Netflix (Nasdaq: NFLX) success," Enderle added.
"Downloads represent the future of movie delivery, and the big question is how long it will be until HD movies move to this method. HP (NYSE: HPQ), Apple, Microsoft (Nasdaq: MSFT), Intel (Nasdaq: INTC) and AMD (NYSE: AMD) -- among others -- are working towards this end either individually or in teams, and there is no question it is coming. The question is how soon it will be done right ... in other words, who will do for movies what Apple and its iPod did for music, and what Amazon (Nasdaq: AMZN) and its Kindle did for books?" he added.
Enderle noted that he wouldn't be surprised to see Apple support a subscription music model sometime next year, but the company will have to develop a DRM model capable of surviving hacks after it's released.
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