January 16, 2008; Page B3, Wall Street Journal
SAN FRANCISCO -- Apple Inc. shook up its online video offerings with a new Internet movie-rental service and a revamped product for getting Internet video to television sets, and also unveiled a new ultra-thin laptop computer, the MacBook Air.

But the products were widely expected in the run-up to the Macworld conference here, where Apple Chief ExecutiveSteve Jobs introduced them in a keynote speech. In a sign that investors had hoped for more surprises from Apple, which has a track record of standout innovations like the iPhone in recent years, the company's shares fell 5.5% to $169.04 in 4 p.m. composite trading on the Nasdaq Stock Market.

"There's nothing wrong with the products," said Gene Munster, an analyst at Piper Jaffray. "It's just people want more."

In a sign that its frosty relationship with Hollywood is thawing, all of the major movies studios agreed to participate in Apple's new movie-rental service.

For more than a year, the Cupertino, Calif., company has sold movies on the iTunes Store, but only a small handful of major studios participated and just one, Walt Disney Co., permitted Apple to sell new releases in addition to older films. Apple and the studios have wrangled over issues like pricing of movie purchases and piracy.

Overall, Apple has sold four billion songs through iTunes and 125 million television shows, but only seven million movies, which didn't meet the company's expectations, Mr. Jobs said.

Mr. Jobs predicted that Apple's new movie-rental service, launched yesterday, would find a wider audience because it is less expensive for consumers than purchasing movies. While new releases on iTunes currently cost $14.99 and older "library" titles cost $9.99, consumers will be able to rent titles in both categories for $3.99 and $2.99 respectively. Consumers can download the movies to their computers, iPods and iPhones, and are given a 24-hour period to finish viewing them after first starting to play the movies.

News Corp.'s Twentieth Century Fox, Walt Disney, Time Warner Inc.'s Warner Bros., Viacom Inc.'s Paramount, Sony Corp.'s Sony Pictures Entertainment and others said they will offer movie rentals through the service.

Apple also addressed some of the shortcomings of Apple TV, a product it introduced last year that lets users display video from the Web on TV sets. Apple TV has sold poorly, in part because it required users to first purchase movies on their PCs and transfer them to the device.

Apple said a new version of the software that runs the product will allow users to rent or buy movies directly from their Apple TVs. Apple dropped the product's price to $229 from $299 and said the new software will be free to existing users.

Mr. Jobs described Apple's new MacBook Air laptop as the "world's thinnest notebook" -- measuring only .76 inch at its thickest -- a point he sought to drive home by dramatically pulling the computer out of a large envelope on stage. He predicted Apple will help expand the market for "sub notebooks" by offering a larger screen, keyboard and faster processor on the $1,799 MacBook Air than are typically found on such products.

Apple also said it is updating the software on its iPhone and introduced a device called Time Capsule, starting at $299, for backing up a computer's files over a home network.