After selling film and television downloads and changing the way people consume music with the iPod, Apple’s latest venture will see it enter a business normally associated with Blockbuster and other DVD rental chains.
The group has been quietly working on a new online film rental service, which will allow movies to be downloaded and viewed on a rental basis. The move has big implications for the DVD rental industry, as well as cable and satellite operators, which are waking up to the power of video-on-demand.
Films tend to be released on VOD after they have appeared in cinemas and after they have been made available to rent or buy on DVD.
However, Comcast, one of the largest cable operators in the US, recently completed a test in Denver and Pittsburgh where films were made available on VOD at the same time as they were released on DVD.
The group reported a sharp increase in VOD sales and is hoping to extend the service, provided it can secure the agreement of Hollywood studios.
This is not expected to be too difficult because profit margins on films rented via VOD are much higher than on DVD rentals. Studios receive almost $2.50 for every $4 movie rented via VOD by a cable subscriber. But the studios receive only $1.20 per $4 movie rented on DVD.
With Apple set to enter the fray with its own service, pressure on the studios to bring forward the VOD “release window” is likely to increase. This would spell bad news for Blockbuster, as well as Comcast, DirecTV and other US pay-TV operators.
VOD is one of several services that US pay-TV operators bundle together to make their subscriptions more attractive to consumers. “With cable and satellite, you pay for the privilege of accessing content that you may never watch,” says Jeff Rutenbeck, dean of communication and creative media at Champlain College in Vermont.
Apple’s VOD service would allow consumers to rent films without having to take out a costly cable or satellite subscription, he adds. Apple would not be the first company to launch an online VOD service. Microsoft, Amazon and Movielink all have online film rental services.
But Apple has a built-in advantage: its hardware.
It has sold an estimated 15m video iPods and will soon launch its keenly anticipated iPhone, which will also be able to play film and video content. Apple’s proprietary digital rights management system means only content downloaded from iTunes can be played on these devices.
The device that stands to benefit most from the launch of an Apple VOD service is Apple TV, however. The box allows content downloaded from iTunes to be viewed on a normal TV set. The company has not disclosed Apple TV sales but reports have suggested the product is struggling.
That could change once there is high-quality content available to download and rent. “VOD gives the Apple TV box a lot more utility,” says one senior Hollywood studio executive. “Right now it’s just a way to move stuff from iTunes to your TV but it will end up becoming a way to directly order a movie to your TV.”
Apple has already dabbled with online movie downloads selling several million titles. But Jonathan Weitz, a principal with IBB Consulting, a media consulting firm, says a VOD service from Apple will be more popular with consumers.
“Consumers don’t want to own media – they want to consume it,” he says.
“We believe that VOD on TV and online will eventually be larger than electronic sell through of video content.”
Apple’s iTunes store, he adds, “started its life as a way to get people to buy - and keep – their iPods. Now [Apple] knows there’s also this vast market in the living room. iTunes and VOD can get them into the living room in a much bigger way.”
