Industry insiders believe the Microsoft-Disney alliance, which will see the two companies develop digital media content and delivery systems together, indicates that a new format war is under way.

Jupiter Research analyst Joe Wilcox told The New York Post: "Apple has traction in Hollywood. Its computers are used to make a lot of movies. But Apple needs to go a step further in the digital distribution of video."

Wilcox notes that Microsoft plans to introduce handheld devices later this year that will let users fetch and play movies on the go. "If the only way to download Disney movies is on a Microsoft-powered digital player, a consumer might buy music that would play on the same device. It might finally give Microsoft a leg up on Apple's iPod," he said.

Wilcox also spoke to The Mac Observer explaining: "The problem with Microsoft's media technologies has been lack of content, so this deal with Disney potentially opens up a fair chunk of family-oriented content that can be re-distributed in Windows Media format either on DVDs or downloadable online."

The Mac Observer notes that a similar deal was forged between Microsoft and Time Warner last May. Under that arrangement, Time Warner agreed to work with Microsoft to promote the creation and distribution of digital content from its Warner Brothers film studio.

Wilcox suggests that Apple should follow Microsoft's example and form relationships with other content makers. He said: "I think this should be a wake up call for Apple. Microsoft is out there licensing its DRM. It's ending up in some 600 music devices and being used as the format in a lot of music being sold today. They lead in distribution. But Apple has a lead in consumption in the music space and has a great presence among Hollywood filmmakers.

"What Apple really needs to ultimately do is license the DRM. That would help to proliferate its Advanced Audio Codec (FairPlay) and then extend Apple's lead on the music side further and maybe even leverage that into the video market."

Jupiter Media analyst Michael Gartenberg said: "This announcement helps Microsoft become the de facto standard for content that's in a digital format. This alliance means the war has begun. Apple needs to step it up."