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Move over Netflix, VOD services; here comes Apple

Apple has taken the online movie rental business to a new level by signing deals that enable iTunes to offer first-run films.

Quickly filling up Netflix's rearview mirror is a sight that no tech company wants to see: Apple.

Apple announced on Tuesday that the company has cut licensing deals with every top film studio--deals that will enable iTunes to offer first-run movies a month after they are released on DVD.

This means that Apple has won a major advantage in the Web movie-rental business. One of the biggest complaints customers have with online movie services is that none offer first-run features. The same is true with some of the video-on-demand services operated by the cable companies.

Moreover, Netflix offerings don't work on anything but computers running Microsoft's operating system.

Apple CEO Steve Jobs told the audience during his Macworld 2008 keynote address on Tuesday that movies offered by the service, iTunes Movie Rentals, will play on PCs, Macs, iPods, and iPhones.

Apple also one-upped most competitors by offering films in high definition (HD). Jobs told the Macworld audience that customers can watch the streaming movies instantly. They will have 30 days to start watching the moves and once they begin streaming the film and will then be allowed 24 hours to finish viewing.

Apple will charge $3.99 for newer releases and $2.99 for older titles. Customers can pay $1 extra to obtain movies in HD. The company expects to offer 1,000 films by the end of February.

"The big surprise is that they're doing HD," said James McQuivey, an analyst with Forrester Research. "Apple nailed this because HD is what consumers want."

Apple's new rental service isn't likely to threaten Netflix's core mail-order business, according to McQuivey. Apple is charging on a per-film basis while Netflix business allows users to watch what they want for a monthly fee.

But the future of movie rentals is supposed to be providing customers access to any film with a push of a button. Nobody offers that--yet. But in the race to deliver instant gratification, Apple just zoomed past Netflix.

Still, the Web rental business as a whole has many shortcomings. Some are technological and some are the annoying restrictions imposed by the studios.

Transmitting movies over the Web, especially in massive HD-quality files, is known for taking multiple hours. The viewing experience, meanwhile, is often marked by stalling and jerky video.

Among Apple's competitors is Microsoft's Xbox. The company launched a movie and TV download store for Net-connected Xbox 360s in November and some users have complained about hours-long delays in getting their films. What Apple fans will be interested to see is what kind of viewing experience Apple can deliver.

One thing that is bound to annoy them is the viewing deadline. That isn't Apple's fault, according to McQuivey.

The reason for the deadline, he said, is that the studios insist on it because they don't want movies sitting on people's hard drives for too long.

"Their worry is that this would discourage people from picking up the DVD at Wal-Mart," McQuivey said. "The DVD market is $23 billion a year, twice as big as the annual box office revenue. The studios don't want to mess with that if they can help it. At least for now."