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Why Apple iTunes Isn’t Selling Movies. Yet.

The technology for downloading movie-length videos is ready, but their multi-gigabyte files would overwhelm current broadband connections.

Since Apple unveiled its iTunes Music Store in spring 2003, bloggers have batted around the idea that the company chose the name cleverly – because “Music” could be changed easily to “Media” when it started selling online movies. Three years later, although movies have not yet appeared on the iTunes site, it has sold more than 15 million digitized TV shows and videos (for $1.99 a pop), with the blessing of ABC, Disney, Showtime, NBC, MTV, and other providers.

So far only one full-length movie has been offered at the iTunes Music Store, “High School Musical.” And it’s formatted only for the iPod. (Courtesy of Apple.)

Not surprisingly, then, the success of these online TV shows and videos has accelerated speculation about movies. Last week, Variety, Forbes, and MSNBC all ran stories about rights and pricing negotiations between Apple and the major movie studios. The consensus: It’s just a matter of time before iTunes starts selling feature-length movies, if not this year, then in 2007.

For Internet video distributors, though, the Motion Picture Association of America has been a tougher nut to crack than television studios, because the film industry is more concerned about piracy.

Aside from the wrangling over copyright and digital-rights management, though, technical problems also stand in the way of an iTunes Movie Store. Actually, it’s one key technical issue. While Apple already has a high-profile storefront, marketing mechanism, and suitable file format for delivering movies, figuring out how to deliver these massive, multi-gigabyte files remains a challenge.

Whether a consumer has a dialup or a broadband connection, it takes only a few minutes to download a song from iTunes. The Lord of the Rings trilogy would be several thousand times larger – yet have to be downloaded at the same rate.

Choosing a file format carefully can mitigate the problem, but only somewhat. Apple owns the QuickTime format, whose latest QuickTime 7 Pro version, includes the H.264 compression/decompression standard, which is also used in the new generation of Blu-ray and HD-DVD formats. It compresses data into a much smaller space than the MPEG-2 codec used on DVDs. As a result, a DVD-quality movie rendered in H.264 will take up half as much room on a disk drive and be twice as quick to download. (The H.264 standard is also designed to allow viewing at many different scales, from low resolution for 3G cell phones and video iPods to high-definition versions with 1,080 lines of vertical resolution.)

But the HD movie trailers that Apple currently offers on its website still weigh in at more than 100 megabytes. And even with H.264 compression, an entire movie would amount to well over one gigabyte and take an entire evening to download at the 1.5-megabits-per-second maximum cable or DSL modem speed available to most Internet users in the United States – which lags far behind many other developed nations in the capacity of its “broadband” links to residences. (The average South Korean household, for example, has 10-megabit-per-second access to the Internet.)

“This is one of the reasons why there’s no activity taking place” in movie downloads, says Frank Casanova, director of QuickTime Product Marketing at Apple. With a 1.5-gigabyte movie file, “you could request a movie from Netflix [which delivers DVDs by mail] before this download gets to you.” (Casanova said this even as rumors were breaking that Netflix was investing money in a movie download service.)

Specialized Internet service providers, such as Speakeasy, can double the speed of a home broadband connection, to 3.0 megabits per second. But these services cost roughly $80 per month, twice as much as standard DSL or cable modem Internet service, and gigabyte-sized movie files would still take hours to download. Consider that for an extra $40 a viewer could rent more than a dozen DVDs from a video store.

Casanova says that Apple has offered one 90-minute TV movie, High School Musical, from the Disney Channel, which sold well. But, as with all video content that it currently sells, the movie was formatted for the video iPod (at 320 by 240 pixels of resolution).

Some viewers don’t mind watching movies on a tiny screen. “I travel a lot, and see people watching movies on their [Sony] PSPs,” Casanova says. (Sony sells movies for the PlayStation Portable on a proprietary Universal Media Disc format, avoiding the need to download large files.) But watching the same low-resolution file on a 30-inch TV or computer monitor is not a pleasant experience, he admits.

“Personally, I think that people can see differences in video quality before they hear differences in sound quality,” says Joseph Fahs, an online content producer in Los Angeles. “I think people who are used to DVDs will more easily notice the change in quality in downloads” if a provider such as Apple offered only reduced-resolution movies to save on download times and bandwidth usage.

Companies such as CinemaNow and Movielink are already selling downloadable movies over the Internet, deciding that they’ve achieved a workable combination of picture quality, download time, and anti-piracy technology. And just this week Warner Bros. began selling full-length films at Guba, a San Francisco-based video-sharing site.

CinemaNow president Bruce Eison says bandwidth isn’t a show-stopping problem. The company offers movies from Sony, Warner Bros., and other studios that are “right below DVD” quality and can be downloaded in an hour to an hour and a half, he says.

Yet CinemaNow’s own literature states its movies are encoded at rates of 1,200-1,500 kilobits per second – far below the approximately 7 megabits per second for DVD quality. (H.264 can deliver DVD quality at around 2 to 3 megabits per second.) The upside, however, is that lower bandwidth requirements mean that CinemaNow can stream its movies, so users with a constant Internet connection and DSL or cable modems can watch them as they download.

Eventually, larger digital video providers like Apple may find a compromise by using an encoding scheme that produces a picture of acceptable quality yet doesn’t tax customers’ patience at download time. The exact method may depend on the medium or the content; consumers are likely to be less particular about visual quality watching a TV show like “My Name is Earl” than Star Wars.

Michael Gartenberg, vice president and research director for Jupiter Research, believes that the technical hurdles with selling downloadable movies are minor. “The remaining technical issues have to do with details,” he says, such as choosing resolution and compression standards for downloads, Gartenberg says. “It’s attention to details that made it work for Apple and the iPod.”

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