Oh look -- a new gadget from Apple! It's a ... $300 set-top box. (Groan.) I'll go out on a pretty stout limb today and predict that the combination of Apple's iTV box (see Engadget's pictures here) and its new downloadable film store won't have a fraction of the impact on the movie-distribution business that the iPod and 99-cent downloadable songs had on the music industry. The reason goes beyond Steve Jobs' inability to persuade studios other than Disney (where Jobs is a board member) to accept a significantly lower wholesale price for a download than they charge for a physical product. The main problem here is that Hollywood and movie fans don't seem ready to make the same leap into the virtual world that the music industry made (albeit reluctantly). They're too committed to bits encased in plastic. And Apple doesn't provide a way to convert its downloads into DVDs, at least not yet.
One of the reasons downloadable music took off, I think, is that the shift from CDs to song files improved the user experience in a few notable ways. Song files made it possible to put one's entire music collection onto a computer or carry it around in a pocket. Software like iTunes allowed people to mix and match their favorite songs in customized playlists, rather than listening to music album by album. And stores like Apple's made it possible for people to buy just the one or two songs they knew and liked from an artist in lieu of entire CDs. Those songs then fit seamlessly into the collection of tracks ripped from one's CDs (or downloaded illegally from file-sharing networks). Thus, when people shelled out $300 for an iPod, they were buying something that they couldn't get from CD players, turntables and boomboxes.
Contrast that with the situation in Hollywood, where the shift from DVDs to movie files is yielding few, if any, benefits for viewers. The price for downloadable movies isn't dramatically better than the price for a disc at Wal-Mart, in part because the studios don't want to antagonize retailers who are selling so many DVDs. There's no legal way to put your entire movie collection onto a computer or portable device -- DVDs are encrypted, so they can't be ripped legally the way CDs can. So there's no way to carry all your movies around with you, nor to mix and match your favorite scenes from a variety of flicks into a customized video (not that you'd want to; unlike a CD, a movie isn't a collection of severable pieces of entertainment).
There's also what industry insiders call the "last 100 feet" problem, referring to the gap between the typical home's computer and its living-room TV set. The obvious solution would be to burn the downloaded film onto a DVD, but the major studios insist that such discs be encrypted. (Studio execs say that selling a product without encryption would fuel rampant illegal copying, but I wonder why a pirate would pay $10 to $15 instead of downloading a free, bootlegged version through BitTorrent. Convenience? Reliability?) There's only one kind of encryption that a conventional DVD player can decipher -- called Content Scramble System, or CSS -- and it's yet not available for use on homemade DVDs. With luck it will be available early next year, thanks to a recent agreement between Hollywood studios, tech companies and consumer-electronics manufacturers to create customized blank DVDs that are CSS-ready.
Apple might go the CSS route eventually. Today, though, it showed only one way to get a movie from a Mac or PC to the TV: the new iTV box, which is due early next year. This box will let you beam music and movies securely from a computer to a digital TV set, provided that the TV is equipped with the right kind of digital input (technically, HDMI or DVI with HDCP for those of you who like acronyms). I really like the idea of Apple providing a way to move video securely over a home network -- there are plenty of folks who have tried, but I've yet to find a living-room device that handled encrypted content really well. Still, given how few people have digital TVs with the right kind of digital inputs, I don't see an online movie store succeeding in the near term without the ability to burn DVDs.
Beyond that, the need for a $300 set-top box craters the whole value proposition of downloadable movies. What does the iTV box offer that a DVD player can't do for significantly less money? Yes, you can use it to watch the copy of "Finding Neverland" that you downloaded for $10, but you could find the film on DVD for about the same price and get more content (Apple's not including the bonus DVD features in its downloads). It would be a more compelling device if it could let you watch any movie in your collection, but again, you can't -- they're not on your computer, they're stuck on DVD. So what unique thrill does Apple provide? Watching two-hour movies on an iPod screen smaller than your credit card?