January 30, 2009 / 12:30 AM / in 9 years

Hollywood has a lot riding on Steve Jobs

LOS ANGELES (Reuters) - Steve Jobs’ exit from center stage at Apple Inc is unfolding like a Hollywood drama, complete with a charismatic leading man and compelling plot twists.

And Hollywood has a lot riding on Jobs, given his role in shaping digital entertainment and the challenges that lie ahead for the media industry.

Jobs, who is taking a six-month medical leave of absence from his CEO job at Apple, is both hailed as a savior and loathed as a monopolistic Goliath in Hollywood.

He has been a powerful advocate of change in media distribution, at a time when Hollywood studios need to move fast or risk losing viewers who get free content online. But he has also used the dominance of his iTunes online store to tightly control pricing of digital songs, movies and TV programs.

Some observers think negotiating with Apple could become easier for media companies with Jobs on the sidelines.

“There may be some more room for advantageous deal-making between Apple and studios. Steve’s a control freak and tough negotiator, and Apple will lose a lot of bench strength, which may work to studios’ favor,” said one studio executive who did not want to speak publicly about negotiations.

Others, however, are less certain. They say Apple has assembled a group of formidable executives, and the popularity of iTunes and the iPod music player means the company still has a lot of negotiating power even in a post-Jobs era.

”Hollywood’s always been Steve Jobs’ pet interest,“ said Julia Plotts, a business professor at University of Southern California. ”He branched out into Hollywood and provided studios with a new mechanism to make money in the era of digital content delivery.

She added, “I‘m not sure what does to Apple’s foresight and ability in terms of negotiating with content providers and navigating Hollywood.”

Earlier this month the 53-year-old Jobs, a pancreatic cancer survivor, said he was stepping aside temporarily because of health problems “more complex” than previously thought. His cryptic announcement gave few details.

IMPACT ON DISNEY

Few argue there is any person who bridges technology and media the way Jobs has. In 2003, he convinced reluctant record labels to sell digital songs individually instead of in albums so Apple could launch iTunes. To date, ITunes has sold over 5 billion song downloads and millions of videos.

And he has been a tough negotiator. It took music labels years to get iTunes to agree to variable pricing for songs. And it took a year for Apple and NBC Universal to end a dispute over pricing that had kept NBC TV shows off iTunes.

Jobs is also the largest individual shareholder of Walt Disney Co which bought his Pixar Animation in 2006.

One debate swirling around Hollywood is whether Jobs should seek re-election to Disney’s board in March. Many credit him with helping Disney to capitalize on new media platforms -- its studio was the first to make movies available on iTunes, in a move later followed by its peers.

“If he’s had to leave Apple for health reasons, will he have the time and energy to responsibly serve the shareholders of Disney? That’s something that he and the Disney folks need to discuss,” said Charles Elson, professor of corporate governance at the University of Delaware.

Apple declined to comment for this story. Chief Financial Officer Peter Oppenheimer said last week that Jobs remained involved in strategy and major decisions as Chief Operating Officer Timothy Cook handles day-to-day operations.

DISTRIBUTION WINDOWS

As online video technology continues to evolve, analysts believe Hollywood needs to rethink its so-called “distribution windows” -- the strict order in which films get to consumers. Traditionally, films go first to theaters, then hotels and airlines, then DVD vendors, then pay-per-view cable TV, then cable movie channels, and finally broadcast TV.

A big turning point came last year when iTunes and other online stores reached deals to sell downloads of some films the same day they were released as DVDs. Previously, downloads were sold only when a film reached the later pay-per-view “window.”

“Jobs convinced music labels to widen the content they’d provide digitally by allowing him to sell singles, and he could be the guy to influence the next generation of video delivery by getting studio executives comfortable with rearranging distribution windows, which is a big hurdle, ” said Gartner Research analyst Mike McGuire.

Studios generally earn a $12 profit on a $16 DVD, or a profit margin of 75 percent; they typically get 60 percent, or $2.40, on a $4 pay-per-view or video-on-demand transaction, said Michael Pachter, analyst with Wedbush Morgan Securities.

Many believe Jobs is the one who can push for change.

“Studios respect him and also despise him. Either way, what you gain by taking him out of the equation, you lose in the vision required to keep the businesses working together,” said one digital media executive.

Reporting by Sue Zeidler, editing by Tiffany Wu and John Wallace

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