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Apple in talks with Hollywood over film downloads for iTunes

Apple's chairman Steve Jobs is heading for another showdown with the media industry over plans to start selling film downloads at the company's iTunes online store.

The big Hollywood studios are resisting Mr Jobs' plan to sell feature-length films at a flat rate of $9.99 (£5.40) and are refusing to license any content to iTunes unless he agrees to flexible pricing. The studios want consumers to pay twice that amount for new releases fresh out the cinema.

Apple is gearing up for the launch of a new generation of video iPods in the autumn, according to rumours swirling through the industry, and Mr Jobs is said to want to launch films on iTunes at the same time.

Apple shares rose yesterday on reports that negotiations with the studios were moving to a serious phase and that many of the technical difficulties of film downloads - which take much more memory than simple songs or pop videos - can be overcome.

The latest confrontation over iTunes prices mirrors a similar battle waged by Mr Jobs against the major record labels earlier this year. They had wanted iTunes to raise the price of some songs from the flat-rate 99 cents at which they retail at the US store. The labels eventually capitulated in the face of iTunes' dominance of the digital music industry.

Hollywood studios - including Universal and Fox - are determined to prevent Apple becoming such a dominant force in films, however, and some industry moguls are pressing for the introduction instead of digital rental services, rather than buy-to-own downloads.

Analysts say that Mr Jobs may have to compromise. "It is my sense that, while Steve got away with 99 cents with songs, it is not clear he can get away with $9.99 for films," said Charlie Wolf, technology analyst at Needham & Co.

Last month, iTunes signed new supply deals with the four major record labels which allow the store to continue selling songs for 99 cents apiece. Apple controls more than three-quarters of the music download industry because of the cross-marketing between the store and its ubiquitous iPod portable music player.

But Mr Jobs is in a less powerful position in the hard-nosed negotiations with the big film studios, not least because customers may prefer to watch films on their PC than on the small screen of an iPod.

Although Hollywood fears losing sales to online film piracy, this is not yet seen as a significant phenomenon and moguls are telling Apple that they have time to experiment with other download services.

Netflix, which takes online orders for DVD rentals which it sends through the post, is set to be a major competitor to Apple, and studios such as Universal have launched their own download websites.