Apple and Fox plan movie rental deal: reports

A customer checks out Music Store (on a screen) with Apple iTunes at an Apple store in Tokyo in this August 25, 2006 file photo. Apple and News Corp.'s Twentieth Century Fox are set to announce a deal that will allow consumers to rent movies through Apple's digital iTunes Store, media reports said on Thursday.

LOS ANGELES (Reuters) - Apple Inc and Twentieth Century Fox are set to announce a deal that will allow consumers to rent Fox movies through Apple's digital iTunes Store, according to media reports on Thursday.

The agreement will allow rentals of Fox's latest DVD releases by downloading a copy from the online iTunes store for a limited time, the Financial Times said. The Wall Street Journal also reported the deal in its online edition.

Fox's corporate parent, News Corp, had no comment. An Apple spokesman could not be reached immediately for comment.

The reports sparked heavy selling of shares of Netflix Inc, a leading online DVD rental company, and Blockbuster Inc, the largest U.S. movie rental chain.

Analysts were divided about what impact the Apple-Fox deal would have on the $9 billion U.S. movie rental business, which has seen steady declines in in-store rentals and slowing growth online in the past year.

Pali Research analyst Stacey Widlitz said the deal follows a trend of Hollywood studios selling directly to consumers and "cutting out the middleman."

"It's just a sign the studios feel ... that another distribution channel is where they are choosing to go, and incrementally it hurts Blockbuster and Netflix," Widlitz said.

However, Wedbush Morgan analyst Michael Pachter said the deal probably would expand the universe of online renters.

"I don't think that will cannibalize rental for the purpose of viewing at home," Pachter said. "I think that the primary purpose of renting movies is to consume the entertainment in the home. The primary purpose of downloading anything from iTunes stores is to consume on the go."

Pachter said the rental terms and movie release schedule will largely determine how successful the Apple-Fox deal is.

Representatives for Netflix and Blockbuster had no immediate comment on the matter.

Video sales have lagged behind the growth in popularity of music downloads on iTunes. Media companies have wanted more flexibility from Apple in pricing policies.

Shares of Netflix ended down 4.4 percent, or $1.25, at $27.45 on Nasdaq. Shares of Blockbuster slid 6.7 percent, or 28 cents, to $3.90 on the New York Stock Exchange.

Reuters