Apple Computer Inc. (AAPL) on Tuesday began selling movie downloads from Walt Disney Co.'s (DIS) film studios, aiming to turn its iTunes online music store into a one-stop shop for digital entertainment.

Aside from the iTunes announcement, Chief Executive Steve Jobs also said at a San Francisco media event that Apple planned to ship a device in the first quarter of 2007 to let consumers stream movies, music, photos, podcasts and television shows from the Web to their home entertainment systems.

Code-named iTV, the device will cost $299 and analysts said it could solve the entertainment industry's dilemma of bridging the gap between the living room television and the computer.

"He has fundamentally closed the loop and Apple has a complete solution," said Tim Bajarin, an analyst at Creative Strategies, of Jobs. "This is a big winner for Apple."

Jobs said the combination of iTV, its Macintosh computer, the iPod and other Apple products will put Apple squarely in homes, cars and consumer pockets as it looks to stamp its mark on all aspects of the digital lifestyle.

"I hope this gives you a little bit of an idea of where we are going," Jobs said at the event, where he also unveiled new versions of the popular iPod media player.

In an interview, Jobs said the transformation of the analog to digital photographs is "very far along," and is progressing in music.

He said that Apple is now the fifth-largest reseller of music in the United States behind Wal-Mart Stores Inc. (WMT), Best Buy Co. Inc. (BBY), Target Corp. (TGT) and Amazon.com Inc. (AMZN).

As for movie downloads and tying together the Mac computer and the living room, Jobs said he was confident Apple would succeed.

Microsoft Corp. (MSFT) and Intel Corp. (INTC) have pushed media PCs for years, but with little broad-based success.

"Everyone who's tried this before has failed," Jobs said. "We have a pretty different approach and I think we'll be successful with it.

He also suggested more studios would be announcing tie-ups with Cupertino, California-based Apple.

"We certainly hope so," Jobs said when asked if more deals were in the offing.

"Any of the other studios would be crazy not to jump on this," said Creative Strategies' Bajarin.

DISNEY FIRST

Apple's eagerly anticipated movie service sells new releases from the Disney, Pixar, Touchstone and Miramax studios for $12.99 if pre-ordered or bought during the first week available.

Recent releases will normally cost $14.99 and back-catalog feature-length films will cost $9.99.

Jobs said about 75 films are now available on iTunes, and that they take about 30 minutes each to download for users with high-speed Internet connections. Consumers can view the movies on their iPods and computers, and eventually on televisions with the upcoming iTV player.

[The resolution of the downloaded movies will be 640 x 480 pixels, the same as standard broadcast television but slightly less than regular DVDs, which mostly use a "widescreen" format 720 pixels wide.]

"In less than one year we've grown from offering just five TV shows to offering over 220 TV shows, and we hope to do the same with movies," Jobs said. "iTunes is selling over 1 million videos a week, and we hope to match that with movies in less than a year."

Jobs, a Disney director and one of the company's largest individual shareholders, also introduced new versions of the iPod with brighter screens and longer battery life as Apple looks to expand its dominant position in digital music.

Analysts have said it was only a matter of time before Apple started selling full-length movie downloads via iTunes, which has already sold 1.5 billion songs and more than 45 million TV shows.

Apple's push into movie downloads come at a time when the company is facing a growing contingent of competitors in the digital music market, including Microsoft, which plans to launch its Zune digital media player later this year.

There are already competitors in the nascent movie download market, including CinemaNow, Movielink and Amazon.

In a note to clients, Goldman Sachs (GS) analyst David Bailey said that iTV highlights Apple's "ability to consistently lead the industry and create new markets — all of which should contribute to earnings upside over the next year."

Other new devices unveiled on Tuesday include an iPod with the most capacity to date — an 80 gigabyte player that would cost $349.

Apple said new versions of the popular digital music players would sport classic video games such as Pac-Man and Tetris.

The company also introduced a thinner iPod Nano available in five colors with 24 hours' battery life, which will sell for $149, $199 and $249. It introduced a 1 gigabyte iPod Shuffle that holds up to 240 songs and is nearly half the size of the original version. It will sell for $79.

Apple shares ended up 13 cents at $72.63 on Nasdaq.