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SAN FRANCISCO - Apple said it would rent movies over the web, moving the iPod maker into a very competitive market.
Shares of DVD rental rival Netflix fell 2.5 per cent to US$22.20 and Blockbuster, the largest video rental chain, dropped 16 per cent to $2.72.
But Apple
shares also fell, by more than 6 per cent to $167.64 in afternoon trading, as investors had expected both developments after widespread speculation.
"There wasn't the 'wow' factor from anything that Apple had to say today," said Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles.
Chief Executive Steve Jobs made the announcements at the annual Macworld convention in San Francisco, where last year he showed off the highly anticipated iPhone for the first time, setting a high bar for this year's event.
Apple shares have nearly doubled since last year's Macworld, and in late December topped $200 for the first time.
Jobs said the new aluminium-skinned Macbook Air notebook was the thinnest computer available, at a maximum of 0.76 inches and tapering to just 0.16 inches.
Priced from about $1,800 (920 pounds), the Macbook Air bridges the gap between Apple's entry-level and high-end laptops, and analysts voiced concern that it could steal customers away from its more expensive products.
"It's not really clear how many more incremental buyers you can drive, and there could be some cannibalization," said Shaw Wu, an analyst with American Technology Research.
Macbook laptops have been one of the company's strongest products, with sales rising 37 per cent on the year in the fiscal fourth quarter ended last September.
Apple has enjoyed huge success with its iPod music players and more recently the iPhone, which Jobs said had sold more than 4 million units since its release last June. Jobs showed off new iPhone features such as the ability to display a user's location on a map and a way to customize the main screen with "web clips", or icons linking directly to specific parts of a website.
But Apple has struggled to find a big audience for Apple TV, a product designed to be a Mac accessory for watching internet video on a computer or television and unveiled alongside the iPhone a year ago.
"It's not what people wanted. We learned what people wanted was ... movies, movies movies," Jobs said.
A new version of Apple TV will be able to connect to the internet directly and download TV shows, movies and music through iTunes. Viewers will be able to choose movies directly from their TVs and Apple said viewers could start watching within seconds if they had a fast internet connection.
Jobs announced deals with major movie studios and several smaller ones to offer movies for rental through iTunes, with new releases costing $3.99 and library titles $2.99. High-definition movies will also be available.
The revamp of Apple TV hardware combined with a broad selection of movie rentals would give Apple an edge over competitors such as Amazon.com Inc, Netflix and Microsoft, Wu said.
News Corp's 20th Century Fox, Walt Disney, Time Warner's Warner Bros, Viacom's Paramount, General Electric's Universal, Sony's Sony Pictures, Lionsgate, MGM and New Line have all signed on to web rentals, Apple said.
"It's too early to declare that this is going to be a big hit but this is arguably the best offering out there right now," Wu said. "No one has succeeded in this market, not even themselves."
- REUTERS