Apple may unveil new set-top box with Netflix service

Apple Inc., hosting an annual event on music and media tomorrow, plans to unveil an updated version of its Apple TV set-top box that will include programming from Netflix Inc., according to people familiar with the product.

Users of the set-top box would pay a subscription fee to Netflix for its streaming service, said two people, who asked not to be identified because the plans haven't been made public. The San Francisco event will also probably showcase a higher- definition iPod Touch and revamped iTunes service.

Apple is working on an iTunes feature that could rent out shows from News Corp.'s Fox and Walt Disney Co.'s ABC, people familiar with those plans said last week. Apple is trying to parlay iTunes' dominance in music to step up competition with Amazon.com Inc. and Hulu LLC in video. To offer the rental service, Apple is negotiating with all four major broadcasters, including CBS Corp. and NBC Universal, the people said.

"Video is an area where they need to strengthen their position," said Shaw Wu, an analyst at Kaufman Bros. in San Francisco who recommends buying Apple shares. The company may hold off announcing the rental service until it has nailed down enough deals with media companies, he said.

Apple, the world's biggest technology company by market value, will sell the new Apple TV product for $99, people familiar with the plans said last week. That's $130 less than the current model.

Tom Neumayr, a spokesman for Cupertino, California-based Apple, declined to discuss the new products, saying the company doesn't comment on rumor and speculation.

IPod TouchThe updated iPod Touch will more closely resemble Apple's iPhone 4, with a sharper screen and front-facing camera, according to one of the people. The new version of Apple TV will include a smaller hard drive than the earlier version, first introduced in 2007, the person said.While the new devices will bolster Apple's product line, they won't generate the kind of buzz it gets from the iPhone and iPad, said Brian Marshall, an analyst at Gleacher Co. in San Francisco. Apple itself has called television a "hobby," rather than a major source of revenue. Tomorrow's event is the company's first product announcement since it unveiled the iPhone 4 on June 7."I don't expect any fireworks," said Marshall, who advises buying Apple stock.Apple rose 60 cents to $243.10 at 4 p.m. in Nasdaq Stock Market trading. The shares have climbed 15 percent this year, compared with a 5.9 percent drop in the Standard Poor's 500 Index.Rental TermsThe negotiations with media companies -- including Disney, where Jobs is the largest shareholder and a board member --- would let iTunes users pay 99 cents to rent TV shows for 48 hours, the people said. ITunes users now pay $1.99 to download and own shows from ABC, NBC, CBS, Fox, and cable channels such as Showtime and HBO.Apple sought the new plan after abandoning efforts to create a subscription-TV service, the people said. Media companies didn't want to endanger revenue from cable providers such as Comcast Corp. and Time Warner Cable Inc., they said.While viewing content online is increasingly popular -- thanks to services such as Netflix and Hulu -- owners of the material are struggling to make money, said Jonathan Handel, an entertainment attorney with TroyGould in Los Angeles.'Devalued' Content"There is a feeling in the industry that content is becoming devalued," Handel said. Owners of television shows and movies are trying to avoid the fate of the music industry, which lost control of pricing and promotion after Apple imposed a flat 99-cent per-song price and kept tight reins on how music was sold on iTunes.ITunes' traditional strength -- music -- will remain a focus of the event: An invitation sent to media featured a picture of an acoustic guitar.Apple has sold more than 269 million iPods since introducing the product in 2001, Marshall said. The device helped make iTunes the largest music retailer, accounting for 28 percent of all U.S. purchases and 70 percent of all digital sales, according to NPD Group Inc. in Port Washington, New York.Even so, the iPhone and iPad have emerged as a bigger focal point for investors, Marshall said. They account for 70 percent of profit, he said."The big opportunities here are with the iPhone and iPad," Marshall said.