Apple launches Web movie rentals, thin laptop

By Scott Hillis

SAN FRANCISCO (Reuters) - Apple Inc (AAPL.O) unveiled a lightweight laptop about three-quarters of an inch thick on Tuesday and said it would rent movies over the Web, moving the iPod maker into a very competitive market.

Shares of DVD rental rival Netflix Inc (NFLX.O) fell 2.5 percent to $22.20 and Blockbuster Inc (BBI.N), the largest video rental chain, dropped 16 percent to $2.72.

But Apple shares also fell, by more than 6 percent to $167.64 in afternoon trading, as investors had expected both developments after widespread speculation.

"There wasn't the 'wow' factor from anything that Apple had to say today," said Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles.

Chief Executive Steve Jobs made the announcements at the annual Macworld convention in San Francisco, where last year he showed off the highly anticipated iPhone for the first time, setting a high bar for this year's event.

Apple shares have nearly doubled since last year's Macworld, and in late December topped $200 for the first time.

Jobs said the new aluminum-skinned MacBook Air notebook was the thinnest computer available, at a maximum of 0.76 inches and tapering to just 0.16 inches.

Priced from about $1,800, the MacBook Air bridges the gap between Apple's entry-level and high-end laptops, and analysts voiced concern that it could steal customers away from its more expensive products.

"It's not really clear how many more incremental buyers you can drive, and there could be some cannibalization," said Shaw Wu, an analyst with American Technology Research.

MacBook laptops have been one of the company's strongest products, with sales rising 37 percent on the year in the fiscal fourth quarter ended last September.

Apple has enjoyed huge success with its iPod music players and more recently the iPhone, which Jobs said had sold more than 4 million units since its release last June. Jobs showed off new iPhone features such as the ability to display a user's location on a map and a way to customize the main screen with "web clips", or icons linking directly to specific parts of a Web site.

But Apple has struggled to find a big audience for Apple TV, a product designed to be a Mac accessory for watching Internet video on a computer or television and unveiled alongside the iPhone a year ago.

"It's not what people wanted. We learned what people wanted was ... movies, movies movies," Jobs said.

A new version of Apple TV will be able to connect to the Internet directly and download TV shows, movies and music through iTunes. Viewers will be able to choose movies directly from their TVs and Apple said viewers could start watching within seconds if they had a fast Internet connection.

Jobs announced deals with major movie studios and several smaller ones to offer movies for rental through iTunes, with new releases costing $3.99 and library titles $2.99. High-definition movies will also be available.