Apple's Deal With Fox Divides Integrator Sentiment

Apple's Deal With Fox Divides Integrator Sentiment

This week, reports surfaced that Apple and film studio 20th Century Fox reached an agreement to allow iTunes users to rent Fox films through digital downloads. Apple currently lags behind the competition in digital film downloads, and Apple CEO Steve Jobs has voiced reservations about a rental service in the past. Some home integrators are voicing their own concerns about Apple's strategy.

Ilya Billig, vice president of business development for Lagotek, a Bellevue, Wash.-based residential technology systems company, says digital downloads and hard media-based solutions are both appealing. "There is no one-size-fits-all," he says. "The solutions compliment each other, because it will be awhile before digital downloads get up to speed."

The deal will add to Apple's stable of studios that offer their films on iTunes, including Disney and Paramount. Increasing the digital rental capacity may also have a positive effect on Apple's struggling Apple TV, which plays digital content pulled from any Mac OS X or Windows computer running iTunes onto a high-definition television.

Billig says Apple is not the only one looking to move media into the digital space. "Of course downloadable content from Microsoft's perspective is the way to deal with the content," he says, noting Microsoft's Windows Media Center offers digital download functionality, as does the company's Xbox 360 video game system. In addition, the format war between HD-DVD, which Microsoft (NSDQ:MSFT) supports, and Blu-ray, backed by Sony, leaves customers confused and less willing to invest in a system which might not crack the mainstream.

"Obviously they're not happy about the uncertainly of the future format," he says. Billig says he believes there's really no reason for the customer to have content residing anywhere in the house. "Otherwise you have to pay for hardware that may crash, and other sort of headaches," he reasons. "Again, the ideal case is not to even download it, but to stream it from a digital library."

The partnership also suggests the market for digitally downloaded content is expanding and demand is rising. Still a small market, digital downloads of films provide an alternative to the high-definition DVD market, where the two competing formats, HD-DVD and Blu-ray, are fighting for market supremacy.

Scott Bahneman is CEO of Lake Tahoe-based MusicGiants, a company that provides a digital platform for delivery of high-def entertainment. He says his company's new product, VideoGiants, offers an integrator-friendly alternative and provides superior HD quality. "The minute you put Apple's downloads up in a home theatre it's really pathetic," he says. "When you put it up to play on a big TV its incredibly pixilated." He says his company aims to have their digital download storefront operational by Q1 2008.

Bahneman says a focus on HD quality and dedication to home integrators sets them apart from Apple -- not that he considers the company a competitor. "We pay a recurring revenue back to the integrators for all the music and movies sold -- Apple leapfrogs over the dealer and goes right to the consumer," he says. "Integrators trying to embed iPod technology into their systems are looking at a Trojan horse scenario."

Like Billig, he believes digital downloads are going to be a major part of home integration technology. "I think digital downloads are without a doubt the future, versus dealing with plastic discs," he says. "The integrators have to align themselves with companies who are trying to help them succeed, not circumvent them."

John Oliver, CTO of Dallas-based home integrator Cutting Edge PC's, echoes Bahneman's sentiments when he says he doesn't view the Apple deal as a threat because of the service's resolution limitations. "It's not really meant to be put into a big-screen environment -- users are going toward high-definition, not away from it, " he says. "So for home integrators I really don't see it making a difference."

Wireless Home president Matt Peters says his Naples, Fla-based home integration company was an Apple dealer when the business was started, but could see Apple's proprietary nature did not fit with their business as a customer integrator. "By nature, an iTunes agreement isn't going to work with anything other than iTunes," he points out. "I'm not anti-Apple, but it's very clear when it's a closed ecosystem, as an integrator, that's a challenge."

He says while Apple's high visibility brings more attention to the concept of downloading movies over the Web, Peters does not see the Fox deal as having an particular bearing on his company. "We're already utilizing that type of online movie access and that is of high interest to our clients," he says. "At this point the spread of awareness is the most important thing."