Q: Why are Disney, Paramount and Viacom the only studios whose movies are available at the iTunes store?

A: Fear.

While the vast majority of moviewatchers are buying DVDs and seeing movies in theaters, many are ripping DVDs and downloading movies on their PCs and Macs, disabling or stripping out the digital rights management features. It seems the best digital rights management (DRM) the studios can come up remains uncracked — at best — for a few weeks. And if that wasn’t enough bad news, the US theater box office take was eclipsed by game revenues for the first time in 2005.

The worldwide video game industry, with revenues of $24.5 billion last year, overtook movie box-office receipts…

Studios are treading carefully, and slowly, because their business plan is now littered with uncertainty and big decisions. The livingroom-PC merge is happening quickly for studios.

Too Accessible?
According to Ronald Grover at BusinessWeek, many studios specifically balk at Apple’s DRM rules: iTunes Store movies and TV shows can be shared with up to 2 other Macs/PCs (via iTunes’ authorization limits). In reference to Apple Inc.’s CEO Steve Jobs, Grover wrote:

“His user rules just scare the heck out of us,” one studio executive told me.

Generally speaking, studios hate backups and multiple copies of their material. They want you to own Mission Impossible, and if the DVD gets scratched, lost or warped, they’re happy to sell you another. Luckily there’s a legal concept in the US known as Fair Use that allows us to legally back up our media, which opened the door to legally owning a second copy of movies and music (and software).

Old Media and New Pirating
Studios are still comfortable with optical media (DVD, HD-DVD, BluRay) because — despite all three formats’ protection schemes having been breached — ripping the contents to a Mac or PC remains a technological hurdle for regular users.

Downloading movies from torrents is likewise demanding in both skill and drive space. When it comes to downloading movies, we’ve yet to equal the ease of music pirating in the late 1990s in terms of the speed of downloading and storing the files (downloaded file size vs. average hard drive size vs. average connection speed). But the days of terabyte storage and even faster download speeds for cable and DSL subscribers will soon make moving movies over the internet easier, and the studios know it.

Studios Learn from Music
Studios are wary of Apple’s Jobs and his smashing success selling music online at a 99¢-per-song price point. The music industry largely feels it lost a big opportunity when it agreed to that price point (the bulk of the music industry anyway). Maybe it wasn’t using its crystal ball to see that the iTunes Music Store (as it was known back then) would become the runaway online music sales leader, and that 99¢ per track would become a standard.

In March 2006 the record labels tried and failed to have Apple raise that price point. They faced significant obstacles, including Jobs’ and the music buying public’s reluctance, and the likelihood that pricing tracks over a dollar would break a psychological barrier and send online music buyers (back) to the land of online music pirates. [For anyone interested, I’ve detailed my feelings about Apple’s music DRM here.]

Relationships are Precious
And then there’s the delicate relationships between the studios and movie retailers:

Charging $14.99 for new flicks and $9.99 for older ones, Jobs clearly wants to undercut big-box retailers like Wal-Mart (WMT) and Target (TGT), which sell the great majority of the newer DVDs these days for as much as $19 a pop. That’s a bad move on Jobs’s part. Both Wal-Mart and Target have made their feelings known about being undercut by Apple. Big surprise—they’re not happy about it, and Hollywood has been paying attention to these all-important retailers.

I agree with Mr. Grover that all the major studios will eventually sell movies through Apple. Only they’ve seen the road map of what not to do, thanks to the music industry’s missteps, and they’re going to move with extreme caution.

If all this looks like the famous Who-Needs-Physical-Media-Distribution argument, it’s because it is. Physical media is more in our past than future. It wastes resources like fuel and paper.

The asteroid is about to hit the DVD world… you can see it approaching in the sky on clear evenings.

I wouldn’t want to be a dinosaur.

[Author’s notes: Paramount and Viacom have hedged their bets by restricting the titles sold in the iTunes Store to older, less popular films. Blockquotes #2 and #3 pulled from Why Hollywood Snubbed Jobs at MacWorld.]