Apple unveils its latest arsenal
Fortune's Peter Lewis reviews the new Apple iTunes 7.0, featuring movie downloads.
By Peter Lewis, Fortune senior editor

NEW YORK (Fortune) -- In the first six days after the launch of its new iTunes movie download service, Apple (Charts) sold a million dollars worth of Disney films, or 125,000 downloads, according to Disney's CEO, Robert Iger. Before the year is out, Iger added, Disney (Charts) expects to reap $50 million from iTunes movie sales.

That's Hollywood pocket change compared to the box office and DVD take for a single hit film. But for a brand-new service that delivers full-length features over a broadband connection to a PC or Mac, with a library limited to just 75 Disney flicks, it's a very impressive debut.

And it's especially impressive considering the numerous ways that the new digital movie download services, including the Apple iTunes Movie Store and Amazon's Unbox (reviewed here earlier this week), fall short of the DVD movie experience.

We gave two thumbs down to the Amazon Unbox service in the first installment of this review, mainly because we have only two thumbs. Amazon.com (Charts) is a terrific online department store and at least once a month I use it to buy books, electronic gear, audio CDs, barbecue grills and other stuff. But Unbox reveals that Amazon is not a software company, and the Windows-only Unbox service is clunky to use.

This may not be entirely Amazon's fault, however. The Windows version of Apple's new iTunes 7.0 software, which includes the new iTunes movie store, also suffers from the underlying complexity of the Windows operating system.

Fortunately, iTunes 7.0 also comes in a native Mac OS version, revealing one of the great secrets of the computing industry: Apple, known for its elegant Mac computers and iPods, is really the best software company in the business today. Look at what Apple has done for music and television downloads, after all: Apple is now the fifth-largest retailer of music in the country, and some 45 million downloaded TV episodes are playing on an iPod near you.

The free download of iTunes 7.0 software (www.apple.com/itunes, for Windows and Mac) adds movies to the existing stores for music, audio books, TV shows, podcasts and digital radio. And although the software has some glitches, especially on the Windows side, it instantly sets the new standard for digital media stores. And because Apple does both the Mac hardware and software, the movie download service integrates smoothly with video-enabled iPods and Macs.

Apple also gave a sneak peek at a new gadget code-named iTV, which will go on sale next spring for $299. Assuming it works as advertised, the iTV box will be the missing link between the Mac and the TV, allowing movies downloaded from iTunes to be streamed wirelessly from the PC or Mac to the big-screen TV in the other room. But until iTV comes along, the only way to watch iTunes movies on a screen larger than a computer monitor or tiny iPod display is to run cables from the computer to the TV - not esthetically pleasing - or to use special geek rituals and incantations that are beyond the average consumer.

Read more on iTV and Apple's play to dominate the movie download game.

Consumers aren't allowed to make a DVD copy of the digital movie to play on their DVD players, or even to make a backup of the movie they've just purchased. And the video quality of digital downloads is inferior to that of DVDs, which are themselves inferior to the new generation of high-definition DVDs that are on the market now. If you've plunked down big bucks for an HDTV set, why feed it low-definition digital movie downloads?

Art gallery within a movie store

What is beautiful, though, is the new album and movie poster art on iTunes 7.0. Apple has added two new ways to view your digital media collections. One is an album view that lists each album (or partial album) in a sequential list with cover art. The other allows users to flip through album covers, as if they were on a carousel. I suppose this option will appeal mostly to oldsters like me who remember what album art was.

But where does one get the album art for all those CDs that were ripped into iTunes?

A new command, "download album art," allows users who set up an Apple iTunes account to grab album artwork for everything in their collections.

Well. Almost everything. While the command generally works well, it takes a long time to download album graphics the first time from Apple's servers, and a really long time for people like me with big music libraries. Even then, about 20 percent of my albums stumped the artwork fairies, especially Broadway soundtracks, classical albums and (no surprise here) my beloved bootlegs. Only occasionally did the service apply the wrong artwork to an album. Apple says the album art download service will be refined as time goes by.

Going more than skin deep, however, the Windows version of iTunes 7.0 suffers from a variety of ailments that may or may not be fixed quickly with a software patch. On my Windows system, iTunes 7.0 causes music to skip annoyingly every time another program tries to ping the sound card. Who wants a music player that makes music sound bad?

My Windows version of iTunes 7.0 also seems bloated, and a check of system resources shows it to be hogging the dance floor, microprocessor-wise.

Apple says it is aware of some performance issues with the Windows version and plans to issue a software patch "soon." In the meantime, I'd advise people who are happy with version 6.0 to wait for iTunes 7.0.1.

For most Mac users, though, iTunes 7.0 gets a thumbs up. The movie download service adds an interesting new dimension, although one that is limited by the small initial catalog of Disney films. Of course, the iTunes TV show library started with one studio and five shows, all from Disney's ABC, and eventually expanded to 220 shows from more than 40 studios. I'm guessing the movie download service will follow a similar trajectory.

And even if you're not interested in downloading movies, the other new features of iTunes 7.0 - like the album art downloading and flip-through stacks, and the ability to have multiple music libraries - make it a compelling upgrade.

In last week's review, Peter Lewis described Amazon's Unbox movie download service as a horror show. Read the review. Top of page