Seen over Memorial Day weekend, Apple built a full scale store on a sound stage at the Warner Bros. lot in Los Angeles. On Memorial Day they proceeded to shoot a commercial that will be part of Steve's announcement on June 9, a la Steve's favorite team at TBWA/Chiat/Day. This was no small feat. This was a full scale and fully operable store, complete with laptops, iMacs, the kids pod, software and accessories on the shelf, functional genius bar. Everything you'd see at at the Apple store, was on the lot/soundstage (same one that The Perfect Storm was filmed on) in working order. The store took 2 days to build. Tear down was complete Monday evening (memorial day). Only a handful of people were allowed to stay for the shoot and no extras/actors were seen in the "store" when the shooting commenced.

(Photo by ifoApplestore.com)

As Defamer points out:

Time Warner CEO Jeff Bewkes cited a 60%-70% profit margin during a VOD trial for Warner Bros. films on cable — more than twice the return on Time Warner DVD rentals.

The good news: You can wait and watch Made of Honor on your iPod in about three months! The bad news: It'll cost you $14.99 to download it. (Or $9.99 three months after that.) And for digital media that costs exactly nothing to reproduce, package or distribute, we think that amounts to little more than information highway robbery. And just in time for the studios to stonewall SAG on new-media revenues!

Or maybe they're not quite connected — yet. Conceding it would get paid for new media when studios got paid, the WGA settled its strike in February by negotiating for roughly 2% of studios' online grosses each year through 2011. But in an earnings call yesterday, Time Warner CEO Jeff Bewkes cited a 60%-70% profit margin during a VOD trial for Warner Bros. films on cable — more than twice the return on Time Warner DVD rentals. It's anyone's guess how that shakes out in terms of purchases, but with DVD sales last quarter at $3.5 billion, and with a fairly clear break between online and traditional media consumers, even a tenth of that revenue online would be enough for SAG president/time-bomb Alan Rosenberg to reinforce the hard line as the first round of negotiations come to a close Friday.

Moreover, as an observant tipster pointed out to us this morning, the markup on these downloads is pretty obscene, maybe even illegal. After piracy concerns were allayed in the last year, pricing was the only remaining sticking point for Apple — which wanted to keep purchases at $10 — and studios, which compromised at $15. Albums on iTunes cost an average of 40% less than their CD counterparts; but with online retailers and box stores pressuring DVD prices below $20, why should they get away with a difference as little as 15% in some markets — especially with no extra features or deluxe packaging? The courts have even addressed this before, but it usually applies to manufacturers complaining about suppliers, not the other way around. Someone! Get the FTC on the line!

• Purchase New Movies on iTunes [Apple]

Coal Black and the Sebben Dwarfs

Bugs Bunny in a racist U.S. War Bonds commercial.

Little Black Sambo from 1932

Betty Boop in a banned cartoon.

Anti-Japanese war propaganda.

Here we know better. Software is the ingredient that turns content into quicksilver, shifting in time and place to the device we desire, at the moment we choose. Apple has mastered this alchemy, and others like Microsoft and Amazon.com are studying the fast; but to Sony it remains a dark art.

Online video remains immensely fragmented. Should you download a video on Xbox Live? Buy it on Amazon.com's Unbox via your TiVo set-top? Rent it on iTunes, and broadcast it to your flat-screen display with an Apple TV? The choices seem endless, and endlessly confusing. But none of them, I'd note, market themselves based on a format. The format, if any, is broadband, and a set of standardized audio/video connectors. The rest is fungible.

There will no doubt be a shakeout among online-video stores. If nothing else kills off the weaker players, consumers will rapidly tire of purchasing the same movies again and again. A rack of DVDs on the shelf provides a reassuring sense of permanence. Perhaps physical media will make a comeback. Warren Lieberfarb, who helped invent the DVD at Warner Bros. and now consults for Toshiba on HD-DVD, predicts that flash-memory devices might be sold in stores preloaded with video.

Sony actually had that idea, I believe, with its MagicGate memory sticks. Another nonstandard format, tied to hardware, with buggy software. The same complaints are being made about Blu-ray, with its ever-shifting specification requiring firmware updates. Sony, drenched in blood, stands victorious in the optical-disc format battle. Too bad the war is now being waged in another theater.

Let's spell those out: Sony hates Apple for turning the iPod into the Walkman of the 21st century. Universal is owned by NBC, which has had a big spat with Apple over TV shows. As for Warner Bros. — which is no longer affiliated with Warner Music, the record label which signed a music-download deal with Apple rival Amazon.com recently — it's not clear what the competitive issue might be. But Warner did recently hire Thomas Gewecke, formerly an executive at the Sony BMG music group, to run digital distribution. He may not have fond memories of negotiating with Steve Jobs.

One analyst said "Fox and potentially other studios are coming around to the idea that there is nobody out there to challenge iTunes." The rumor mill pegged Sony, Paramount and Warner Bros. as having talks with Apple about movie rentals, but this is the first concrete evidence of a deal. With Apple getting into millions of homes as a result of increased Mac sales and millions of video-savvy iPods and iPhones sold this holiday, the service could get off the ground much faster than competing services from Amazon or Netflix, which have foundered. We mentioned the possibility of Apple setting up a movie rental service back in November.

More: Fox to allow DVD copying on Apple's iTunes

For one thing, AOL doesn't really own TMZ. It's a joint venture between AOL and a unit of Warner Bros. While the venture itself is a rare example of co-operation between warring branches of the Time Warner media conglomerate, it's unlikely that Warner Bros. would ever let go of the brand. Time Warner lore has it that when the cable division first proposed using Warner's Road Runner character as the name for its high-speed Internet product, Warner asked for a billion-dollar license fee.

And TMZ, while popular and growing, unlike most of AOL's services, is too narrow a brand, ultimately, to cover AOL's full range of services. (TMZ refers to Hollywood's "thirty-mile zone" enshrined in studio contracts.)

And finally, Warner is launching a "TMZ" television series this fall. It's running on News Corp.-owned Fox stations, and it's hard to imagine News Corp. CEO Rupert Murdoch tolerating his TV broadcasts promoting services which compete with MySpace.

No, what Alvey didn't mention — but would make more sense — would be to free TMZ from its warring parents, and all their conflicts. With 9.4 million unique visitors a month, TMZ could easily stand on its own. Forget an AOL spinoff. Bring on the TMZ spinoff.