The announcement from Apple that it is to offer movie rentals through iTunes has had a devastating effect on shares in rental chain Blockbuster.

Upon Apple's announcement at the start of the Macworld tradeshow in San Francisco, shares in Blockbuster plunged nearly 17%.

Apple is now to offer iTunes customers the option to download regular or high-definition format films to watch on TVs, iPods, iPhones or computers.

While Blockbuster has responded by saying it welcomes the news, analysts are pointing to a more gloomy picture, especially for Blockbuster's Movielink download service, which it bought only last year.

Steve Jobs said in his keynote speech that Apple will offer more than 1000 movies for rent online by the end of February through iTunes.

Blockbuster MovieLink has about 4000 films for sale or rental.

Despite Blockbuster's seeming confidence, investors went the same way as analysts as Blockbuster shares fell 54 cents, or 16.7% yesterday.