The news that Time Warner CEO Jeff Bewkes let slip in a conference call on Wednesday — that from now on Warner Bros. movies would come out as video on demand the same day as the DVD — turns out to be bigger than he let on.

Apple on Thursday announced that not only would Warner Bros. titles be available for purchase on the iTunes store the same day and date as DVD release, but so too would movies from 20th Century Fox, Walt Disney Studios (DIS), Paramount Pictures (VIA), Universal Studios Home Entertainment, Sony Pictures Entertainment (SNE), Lionsgate, Image Entertainment and First Look Studios. (press release)

Even before the full extent of the deal was revealed, analysts were talking about the consequences for the DVD business. “Time Warner To Help Kill Off DVD Rentals” was the headline of Michael Learmonth’s piece in Silicon Alley Insider Thursday morning.

What does all this mean? It means Time Warner is finally ready to start weaning itself from DVD sales, which have been Hollywood’s biggest revenue source for years.

It also means that if Blockbuster — or Netflix, for that matter — doesn’t figure out electronic delivery, it is toast. And it means that Sony and Toshiba just incinerated a pile of money in a useless DVD format war. (link)

What convinced the Hollywood studios to cut this deal with Apple’s (AAPL) Steve Jobs? According to Time Warner’s (TWX) Bewkes, the company had been experimenting with “day and date” video on demand (VOD) release for several months and found that DVD rentals only fell by 3 to 5 percent and sales of DVDs actually increased. Since VOD is so much cheaper than printing and distributing discs, it looked like a no-brainer.

“Taking a customer and moving that person over from rental-physical over moving them to VOD day-and-date is like a 60 to 70 percent margin instead of a 20 to 30,” Mr. Bewkes said, according to the New York Times. “So it’s about a three-to-one trade.” (link)

Among the titles immediately available for download on iTunes: “Juno,” “Cloverfield,” “I Am Legend,” “There Will Be Blood,” “American Gangster,” “The Diving Bell and the Butterfly,” “Alvin and the Chipmunks” and “Walk Hard: The Dewey Cox Story.”

Who are these kids?

According to a Piper Jaffray survey of high school students released on Tuesday, 6 percent already own an iPhone and 9 percent expect to buy one in the next six months. That’s twice as many teens as owned iPhones in Fall ‘07, three months after the device was first released, when 3 percent had already bought one and 9 percent planned to.

Overall, Apple (AAPL) did well in the survey, which sampled 389 U.S. teenagers and showed the company’s lead rising in this key demographic.

iPod market share among the group was a record 86 percent, up from 82 percent last fall. And among the 39 percent who legally purchase music online, 81 percent said they used iTunes. That’s actually down some from the 89 percent who used iTunes a year earlier, but it’s not too shabby considering that a majority of the teenagers in the survey download their music from P2P services rather than paying for it legally.

Piper Jaffray analyst Gene Munster, the lead author of the report, surmises that Apple’s share of the legal download market may be falling among teens despite their strong preference for iPods partly because other online music stores are selling DRM-free music that is compatible with the iPod. We assume he’s talking about Amazon.

In any event, the survey shows that despite slowing sales for, say, fashion and footware, U.S. teenagers — or at least 6 percent of these 389 teens — still have money to spend at the Apple Store.

After a confusing 24 hours in which Apple watchers struggled to reconcile a Feb. 26 press release from the company that proclaimed iTunes the No. 2 music retailer with NPD data that showed iTunes in the No. 1 spot six weeks earlier (see here), Apple (AAPL) on Thursday issued a new press release declaring itself No. 1 for both January and February. The key sentence:

Apple® today announced that the iTunes® Store (www.itunes.com) surpassed Wal-Mart to become the number one music retailer in the US, based on the latest data from the NPD Group*. (link)

Note the footnote, which reads:

*Based on data from market research firm the NPD Group’s MusicWatch survey that captures consumer reported past week unit purchases and counts one CD representing 12 tracks, excluding wireless transactions. The iTunes Store became the largest music retailer in the US based on the amount of music sold during January and February 2008.

Guess that clears it up.

Coincidentally, three of the four big music labels also made a big music announcement Thursday afternoon: a deal with MySpace to build what a spokesman describe as a one-stop music site that will offer downloads, ad-supported streaming and music sharing services. Downloaded music would reportedly be compatible with all MP3 players, including iPods. See here.

UPDATE: Apple on Thursday issued a press release declaring itself No.1. See here.

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It happened one week in January, according to a memo sent to Apple employees on Wednesday and intercepted by Ars Technica (link). The memo contained weekly data from a NPD Group Music Survey dated Jan. 8, 2008, and showed Apple’s (AAPL) iTunes store passing Wal-Mart (WMT) for the first time to become the No. 1 music retailer in the United States.

By Feb. 26, however, something must have changed, because that’s when Apple announced that it had passed Best Buy (BBY) to become, for the first time, America’s No. 2 music retailer.

What’s going on?

The most likely explanation is that the January results represent a blip in the data, a short-term peak caused by recipients of iTunes gift cards cashing in their Christmas presents. Music gift cards sold through Wal-Mart and Best Buy in December may also explain why Amazon (AMZN) dropped to No. 4 in the Jan. 8 survey.

But the long-term trends are clear, as sales of physical music continue to give way to digital downloads. The Ars Technica report cites other NPD data showing that 48 percent of U.S. teens — the primary engine of new music sales — didn’t buy a single CD in 2007, compared with 38 percent in 2006.

Despite growing competition from Amazon’s new digital music service, Apple’s position in the legal download market is still strong, given the iPod’s 70 percent share of MP3 player market and its tight integration with iTunes. Apple became the No. 3 music retailer in June 2007 when it passed Amazon, the No. 2 in February when it passed Best Buy, and it may yet overtake Wal-Mart for more than just that one week after Christmas.

It’s all the talk on tech and music blogs: The report in Wednesday’s Financial Times that Apple (AAPL) is negotiating with the big music companies for a deal that would give customers free access to the entire iTunes music library. (link)

In exchange for what? There are several answers to that question in the FT account, and that’s the problem.

In one model, customers would pay a premium — up to $100 extra — for an iPod that would have “all you can drink” access to the iTunes library for the lifetime of the device. This is similar to the “comes with music” deal Nokia (NOK) struck with Universal Music last year. The Nokia deal, however, is for streaming music to a phone. The iPod deal would require download access and some kind of digital rights management scheme to prevent a user from siphoning off the entire library and putting it on a big hard drive.

In the other model, customers would pay a monthly subscription fee of $7 or $8 dollars for full streaming access to the library — like RealNetwork’s (RNWK) Rhapsody.com service — and the right to keep 40 to 50 tracks per year. This model would only work with the iPhone, which is sold on a subscription basis.

According to the Financial Times, the negotiators are haggling over the price. Nokia is reported to be offering up to $80 per handset to Universal. Apple, two sources told the FT, is offering only $20 — which happens to be roughly what the average iPod owner spends at the iTunes store today.

“If that’s really the only thing keeping this from happening, then this is a done deal,” writes Peter Kafka at Silicon Alley Insider, echoing much of the commentary this morning that likes the way this deal sounds.

“I won’t speculate whether the rumor is correct or not but I can say that it does make sense,” writes Michael Gartenburg.

Color me skeptical, and not just because Steve Jobs has repeatedly attacked the idea of “renting music.” People rent movies and watch them once or twice, he believes, but they listen to their favorite music over and over and they want to own it.

Jobs, of course, might change his tune if he could find a way to make subscription services as simple and transparent as the 99-cent-per-song download model that he’s stuck with since he opened the iTunes store.

But the business models outlined in the FT story are anything but transparent. In fact, as MG Siegler points out in VentureBeat, the store and service the FT describes is more complicated than many of Apple’s chief competitors’.

“Does Apple,” Siegler asks, “really want to mess with a good thing?” (link)

Catching up on late week Apple (AAPL) news…

Beatles on iTunes in 2008. We’ve heard stories like it before, but this one has a twist. The London Evening Standard reported Saturday that Paul McCartney, who is said to be worth more than $1.65 billion, will begin releasing the Beatles catalog on iTunes in the coming months to help defray the $40 to $60 million it may cost him to get out of his four-year marriage to Heather Mills. A final divorce hearing is set for March 17. But the Standard goes on to say that Mills could could argue that the deal, said to be worth an estimated $400 million, should be included in her settlement. So Sir Paul is going to release a 40-year-old catalog to raise money to pay a settlement that gets bigger as a result of the sale? (link)

iPhone Software Roadmap video. For those who couldn’t make it to Cupertino for the March 6 event, Apple has made the entire presentation — all 1 hour and 18 minutes — available in Quicktime and HD. See Steve Jobs present U.S. smartphone market shares in a pie chart tilted to make the iPhone’s slice look bigger. See Phil Schiller demo push e-mail and remote wipe. Watch EA’s Travis Boatman play a preliminary iPhone version of Will (The Sims) Wright’s Spore. (link)

iPlayer on iPhone. As promised (after getting pressured by Mac fans), the BBC has introduced an iPhone and iPod touch version of its iPlayer, which makes BBC shows available for download over the Internet. (link) It’s still in beta and is only for British residents and for programs within seven days of broadcast. As Saul Hansel points out in Bits, the Beeb got around the fact that the iPhone doesn’t support Flash by reformatting its video into the QuickTime version of H.264 — which is what Google does to put YouTube videos on the device.

The iPhone software developers kit (SDK) promised for February may not have materialized, but Feb. 26 turned out to be a busy day for Apple(AAPL) nonetheless. The big news was the refresh of the MacBook and MacBook Pro lines (see here), but there were these items as well:

Frequent flier:Morgan Stanley’s Kathryn Huberty rooted through Apple’s 2007 10K and discovered that the company reimbursed its peripatetic CEO $550,000 in airline expenses for the December quarter — three times the average over the previous six quarters (see here). She cites these expenses — presumably incurred on the Gulfstream jet the company gave Jobs in 2000 — as a reason to buy the stock. A better reason would be if Jobs brought home signed iPhone deals with new carriers in Europe and Asia.

iPhone 1.1.4:The latest firmware update for the iPhone and iPod touch, released Tuesday afternoon, was a big one (162.1 megabytes) that except for unspecified bug fixes seems to have added zero functionality. The prevailing theory is that the update is setting the stage for the release of the SDK some time in the weeks ahead.

iTunes rising:The NPD Group reported Tuesday that iTunes has edged aside Best Buy (BBY) and Target(TGT) to become the No. 2 music retailer in the U.S., behind only Wal-Mart (see Apple’s press release here). With 50 million customers and more than 4 billion songs sold so far, Apple will likely overtake Wal-Mart (WMT) before the end of the year, according to Russ Crupnick, NPD’s president of music (see here).

Apple’s (AAPL) iTunes passed RealNetwork’s (RNWK) RealPlayer in November 2007 to take the No. 2 slot in streaming media players, according to a new report from WebSiteOptimization.com.

Although Microsoft’s (MSFT) Windows Media Player is still No. 1, with nearly a 50% market share, its growth has leveled off over the past year.

In fact, iTunes is the only one of the big four players, including Apple’s own QuickTime, to show positive growth lately. (see chart) As the report puts it:

Growing at an annual rate of 26.8%, iTunes hit a high note while the rest of the band was flat. (link)

RealNetworks was a pioneer in streaming media, having introduced its first player in 1995. Its market share might not be stagnating if it weren’t so hard these days to find the free “basic” player on its website amid all the 14-day trials.

Despite the easy availability of pirated music, most U.S. kids in the 9-to-14-year-old “tween” bracket are now paying for at least some of their music downloads.

That’s the key finding of “Kids & Digital Content,” a survey issued Wednesday by the NPD Group. According to NPD, 70% of U.S. tweens download digital music in an average month. Among them, nearly half (49%) used Apple’s (AAPL) iTunes to get their songs and 16% used MySpace (NWS).

However, the second most popular source of digital music, used by more than a quarter (26%) of the group, was the peer-to-peer file-sharing service Limewire.

“The recording industry has focused on high-profile litigation programs as a deterrent, and education initiatives to communicate alternatives to illegal music file sharing,” said NPD vice president Russ Crupnick. “Findings in this report suggest that the industry can still do more to promote specific ways children can obtain digital music legally, through pre-paid accounts and gift cards.”

Of course, all this assumes that the 3,376 kids who sent in completed surveys told the NPD the truth, not what they thought the survey group wanted to hear.

Sometimes you have to listen very closely when Steve Jobs promises something.

When Apple’s (AAPL) CEO introduced movie rentals at Macworld two weeks ago, he demonstrated how films downloaded through iTunes could be sent with one click to an iPod, iPhone or iPod touch.

Then, according to my notes, he said something about “current generation iPods.”

Those three words have got a lot of people on Apple’s discussion boards hopping mad today. It turns out that fifth-generation video iPods purchased as recently as five months ago won’t play those iTunes movie rentals — and not because of any hardware deficiency. Current generation iPods, per the footnote in Apple’s press release here, include only the “iPod classic, iPod nano with video and iPod touch.”

“This is bogus!!!!!” writes user ninzan on one of at least a half-dozen threads devoted to the topic. “I was all up on apple rental now that I find out that I have been locked out i feel like a moronic apple groupie. My 5g Ipod video is apparently too old and my new itouch did not come with video output. i’m screwed”

The only recourse, it seems, is to ask for your rental fee back. According to reader reports, Apple has started to issue refunds.

What’s going on?

Bryan Gardiner at Wired called around and by yesterday had come up with several theories.

Forrester’s James McQuivey thinks it may be a strategy of planned obsolescence — a ploy by Apple to get users to buy new iPods.

Yankee Group’s Carl Howe thinks it might have something to do with the clock-resetting trick some users have discovered for extending the life of a 30-day, 24-hour rental.

The most plausible explanation, to my ear, comes from The Unofficial Apple Weblog’s Christina Warren. She points out here that fifth-generation iPods had a simple analog video output feature (replaced with authentication chip-equipped composite and component AV on the classic, touch and nano with video) that would have allowed rented content to be easily copied. Closing this so-called video hole may have been a requirement imposed on Apple by the movie studios.

Of course, nobody bought a video iPod before September in order to play movies rented on iTunes — an option that didn’t exist at the time. Still, for millions of video iPod owners (disclaimer: I’m one of them), it’s annoying to be so close and yet so far. Clearer disclosure would have been nice. And a refund of a few bucks to users who rented before they discovered the fine print seems like the least Apple could do.