As 2007 came to a close, Apple and Wal-Mart both made headlines in the video downloading business, for different reasons.
Wal-Mart announced that it was leaving the space after just a year in business. At the same time, the week after Christmas, rumors of Apple partnering with News Corp.’s 20th Century Fox to offer downloadable videos for rent on iTunes, began circulating.
The Apple rumors, which are expected to be confirmed at the Macworld Expo in San Francisco January 14, claim that Apple will be entering the online rental market with a technology that lets consumers rent movies for a defined time period via iTunes and view them through an AppleTV, Macintosh computer, iPod or iPhone. Apple already sells films from Disney and MGM through iTunes.
“Most people only watch movies once or twice, so the rental sphere is a well established business model,” said Michael Gartenberg, VP and research director at JupiterResearch. “If Apple is able to get a large enough library offering, then that would be very good for it.”
According to Forrester Research, movie studios make about $10 billion from theatrical releases, $24 billion from DVD sales and $70 billion from advertising when broadcasting on pay-per-view or on network television. Online video downloading is still somewhat inconvenient for watching films. Often consumers can only watch them within 24 hours on the device that they were downloaded onto.
Apple will be competing with some heavyweight brands in the movie rental arena. DVD-by-mail giant NetFlix currently offers an online movie rental service and an Amazon.com/TiVo partnership offer a service to let owners of TiVo digital video recorders purchase or rent movies and TV shows from Amazon’s Unbox video download service. Additionally, last summer, Blockbuster acquired Movielink, an online movie service backed by major studios including Universal, Paramount, MGM and Warner Bros.
One of main challenges facing all of these services is closed technology. Wal-Mart, who is one of the nation’s largest sellers of DVDs, claims that it closed its video business because its technology partner Hewlett-Packard is discontinuing the key infrastructure for the service.
James McQuivey, analyst at Forrester Research, believes that it is unlikely Apple will corner the movie market the way it cornered the music market.
“The Internet is trying to tap into a more immediate sense of consumption,” he said. “Once people can expect movies on demand and their way of thinking changes, then NetFlix and Blockbuster better have a good downloading offer.”