News Corp Hugging Apple: 20th Cent. Fox Films To iTunes

News Corp.’s (NWS) 20th Century Fox studio is talking with Apple (AAPL) about selling its movies through iTunes, reports Pali Capital’s Rich Greenfield (reg. required), who predicts a deal will be done early next year (perhaps in time for Macworld in January?).

So far only Disney has allowed Apple to sell its new movies at the same time its DVDs are released, while MGM, Viacom’s Paramount and Lionsgate (LGF) have partial deals. Hollywood has been wary of selling through Apple for several reasons: It’s worried about giving Steve Jobs too much control over their product (see: music business); it’s worried about pissing off Wal-Mart and other physical retailers, who don’t want to see digital copies sold for less than the discs they sell; and it’s been haggling over price. Here’s Rupert Murdoch in January:

Fox … hasn’t decided what to do with its movies. Unlike Disney and Paramount, News Corp. has not agreed to sell them via Apple’s iTunes. “We’re being a bit choosy,” Murdoch deadpans. That means no Borat on your iPod until Steve Jobs agrees to pay more than what he’s giving Disney. “We’re saying to Mr. Jobs, ‘We don’t know what you intend to sell our movies at, but this is what we’re selling them at.'”

Now Apple looks ready to increase its wholesale price above the $14 to $14.50 it gives Disney (Disney will be able to renegotiate once that happens). The trick is getting WMT and other retailers to play along. Rich predicts the studios will be able to do it with these arguments:

  1. While standard-def DVD wholesale pricing is around $18, the impact of returns likely results in average net pricing per DVD of $15.00, or less. If DVD retailers agree to a no-return policy, the studios would agree to a wholesale price similar to digital distribution (we doubt retailers would agree to this).
  2. Digital copies do not include all the bonus features that are included on the DVD – they simply include the movie (albeit most people never use these “bonus” features).
  3. Digital distribution is in its infancy, with most consumer movie downloading incremental to DVD purchases (albeit, this will inevitably change to a primary form of distribution).

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