Will Apple enter movie download business?

Apple's announcement of a September 12 special event has stirred rumors that the company will unveil a movie download service in the vein of its wildly popular iTunes Music Store. But to succeed in movies the way that it does in music, Apple faces three critical challenges: cost, content, delivery.

Just as Apple wrangled the 99-cent-per-song price for iTunes Music Store, it needs a similarly aggressive movie download price. Michael Greeson, founder and principal analyst of The Diffusion Group, cites other sources (such as Think Secret) as saying that the price of new movie titles on the iTunes service will be US$15 per download.

But will this price be as magical? According to a study conducted by Greeson's firm, 14 percent of broadband households would be interested in a US$15 per download price, while 23 percent surveyed said they would be interested in a US$10 per download price, the original price rumored to be requested by Steve Jobs. The Diffusion Group surveyed 2000 U.S. residents last June. Greeson says he believes that Apple will pay $14 per title for new releases, thus grossing less than US$1 for each new movie sold.

"This is consistent with Apple's general hardware/content model as embodied in iTunes -- keep the prices of the content as low as possible in order to maximize hardware sales for which Apple is able to set above-market prices and draw extremely high profit margins," says Greeson.

Other competitors

This ability to profit less from digital media could change the economics of the online movie business and has competitors watching closely. One such competitor is Starz Entertainment Vongo, a broadband video service that lets subscribers watch a certain number of movies on up to three devices for a fixed monthly subscription fee.

"Apple is not really entering the business to further the delivery of digital media. We believe they're entering the business to further the delivery of iPod," says Bob Greene, Starz Entertainment executive vice president of advanced services. "We'd like to see them drive the prices down so long as they don't give away the wholesale business."

While Vongo is currently subscription only, Greene says that Starz plans to offer what it calls an electronic sell-through business within the next several months. And so does another competitor: Netflix.

"We're investing $5 million to $10 million in a downloading program that we'll announce next year," says Netflix's director of corporate communications Steve Swasey, who did not give further details. "Our goal is to be in the downloading arena when it's more viable."

Barriers to entry

Swasey says that those selling online movie downloads currently face two impediments. The first is the dearth of movies available for download. Licensing agreements between Hollywood studios and traditional broadcast outlets are complex, long standing, and dependent on the type of delivery. For example, Starz Entertainment has exclusive access to make available by subscription about 40 percent of Hollywood movies from Disney, Sony, Universal, NewLine, and other independent studios, during certain time periods after first release.

The second impediment is delivery. Right now movie download services let you watch content on PCs or other portable devices. "Most people want to watch movies on their wide inch TVs," says Swasey.

Despite the challenges, Apple is well positioned to make a splash and influence pricing in the online movie market.

"Apple's entry into this market will serve to legitimize the entire online video download industry -- it will bring instant credibility to business models that until now have been languished and which Hollywood studios honestly believe will grow to be a major part of consumer video sales," says The Diffusion Group's Greeson.

Join the newsletter!

Or

Sign up to gain exclusive access to email subscriptions, event invitations, competitions, giveaways, and much more.

Membership is free, and your security and privacy remain protected. View our privacy policy before signing up.

Error: Please check your email address.
Keep up with the latest tech news, reviews and previews by subscribing to the Good Gear Guide newsletter.
Show Comments

Brand Post

Most Popular Reviews

Latest Articles

Resources

PCW Evaluation Team

Emily Tyson

MSI GE63 Raider

If you’re looking to invest in your next work horse laptop for work or home use, you can’t go wrong with the MSI GE63.

Laura Johnston

MSI GS65 Stealth Thin

If you can afford the price tag, it is well worth the money. It out performs any other laptop I have tried for gaming, and the transportable design and incredible display also make it ideal for work.

Andrew Teoh

Brother MFC-L9570CDW Multifunction Printer

Touch screen visibility and operation was great and easy to navigate. Each menu and sub-menu was in an understandable order and category

Louise Coady

Brother MFC-L9570CDW Multifunction Printer

The printer was convenient, produced clear and vibrant images and was very easy to use

Edwina Hargreaves

WD My Cloud Home

I would recommend this device for families and small businesses who want one safe place to store all their important digital content and a way to easily share it with friends, family, business partners, or customers.

Walid Mikhael

Brother QL-820NWB Professional Label Printer

It’s easy to set up, it’s compact and quiet when printing and to top if off, the print quality is excellent. This is hands down the best printer I’ve used for printing labels.

Featured Content

Product Launch Showcase

Latest Jobs

Don’t have an account? Sign up here

Don't have an account? Sign up now

Forgot password?