Apple making deals for Web video rentals

Apple has been trying to interest a number of Hollywood studios in an iTunes rental service, and several people familiar with the negotiations said more than one studio would appear onstage at the company's Macworld exhibition in San Francisco beginning January 14 to endorse a new Apple movie rental service.

These people, who were not authorized to speak publicly about the negotiations, confirmed the Apple-Fox relationship. Apple now trails several companies offering digital movie rental services, including Amazon.com and Movielink.

The Financial Times first reported the movie rental agreement on Thursday. Apple and Fox executives declined to comment. The Fox studio is a unit of News Corp.

Steven P. Jobs, the co-founder and chief executive of Apple, has been publicly skeptical about movie rentals in the past. Hints that Apple would reverse itself and pursue a digital-rental strategy emerged last month, when a Carnegie Mellon University undergraduate found a series of text phrases in the company's iTunes software suggesting that components of a video-on-demand rental service were already embedded.

Apple, which is based in Cupertino, Calif., now sells movie downloads from several studios through its iTunes service, including Walt Disney, where Jobs is a board member and its largest individual shareholder.

With more than 30 million iPods sold, many of which can display videos, Apple has in its customers an attractive audience for the Hollywood studios. Moreover, the ability of consumers to watch movies on multiple devices--video players, laptops, desktop computers, and televisions--would be a significant advance for Apple, by expanding the market for movie rentals.

The deal for movie rentals is enhanced by Apple incorporating its FairPlay digital rights management system to let consumers transfer rental movies for viewing on iPods or on the iPhone.

Shares of Apple climbed as high as $202.96 on Thursday, but they fell at the end of the day to close at $198.57.

It is unclear whether movie rentals would give the company's Apple TV system a significant bump. Jobs said in an interview last year that the product was a "hobby" because nobody had figured out how to make Internet television a successful business.

Apple TV plugs into a television and wirelessly pulls in video and music from a Mac or off the Internet. The device, which costs $300 to $400, has not proved popular. Apple TV is an important foray, however, because it places Apple squarely in the consumer electronics market, where it will compete with Microsoft and industry giants like Sony and Hewlett-Packard, which are also eagerly looking at markets for entertainment beyond the PC screen.