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Summary:

Apple’s pending foray into movie rentals is a way to boost video offerings on its iTunes store. Forget Apple TV, this is a strategic move to keep the very profitable iPhone and iPod Touch devices in high demand.

ipodtouchtunes.pngThe Financial Times reports that Apple is close to announcing a deal with FOX that will allow the Cupertino, Calif.-based computer and consumer electronics giant to offer movies for “rent” via its iTunes store sometime in 2008. Other Hollywood studios are also said to be negotiating with Apple, the report says.

The rumor is being viewed by some as a way to revive the flagging Apple TV platform. The reality is that Apple needs to beef up its video offerings if it wants to continue the iPod cash machine humming. The best clue is the easy-to-rip-and-transfer-to-iPod capabilities that may be built into future FOX DVD offerings.

Apple will also for the first time extend its FairPlay digital rights management system beyond its own products. A digital file protected by FairPlay will be included in new Fox DVD releases, enabling film content to be transferred or “ripped” from the disc to a computer and video iPod.

A quick visit to the Apple’s iPod website shows that with the exception of low end iPod shuffle, every iPod is video capable. The big money makers for Apple are its new iPod Touch and iPhone devices. Shaw Wu of American Technology Research in a note to his clients estimated that iPod sales for the current quarter will be about 25 million.

“It’s looking like Apple’s most optimistic guidance in eight quarters is turning out to be conservative after all. Our recent checks with supply-chain sources lead us to believe Apple is positioned to deliver upside.” (via Bloomberg)

With 5 million iPhones expected to be sold, Apple at the end of fourth quarter 2007 will have between 5-and-10 million widescreen devices. This is a market that will be looking to fill their new acquisitions with content. Sure, there is a lot of video content for sale at the iTunes Store – television shows for example – but movies are in short supply. As Liz writes over on NewTeeVee

Compared to the six million songs it has in stock, iTunes has about 500 movies and 550 television shows. In October, Apple said it had sold over three billion songs, over two million movies, and 100 million TV shows.

Sure Disney and some other studios offer movies for download, but high prices have kept the buyers away. At $2.99 a pop, the rental business makes more sense. Say if you travel a lot, then filling your device with two or three movies you want to watch before leaving home is still cheaper than paying the airlines for a limited selection of movies, or watching the standard fare.

There is another reason why I don’t think this deal is about Apple TV and the living room – at least not yet. I have been buying TV shows – Numbers, CSI and Psych (before NBC pulled the plug) – and an occasional movie from Apple iTunes. While these were great to watch on my Macbook Pro’s 15.4 inch screen, the experience was mediocre at best when watching the shows my LCD TV via Apple TV. Unless Apple increases the quality drastically, many of the new HDTV owners will find the experience of watching videos on their big screens lagging.

For studios this is not a bad deal. As I have written in the past, DVD business is slumping, and these rentals can help compensate for the lost DVD revenues. More importantly, if someone likes a movie as a rental, they can buy the higher quality (or HD) versions of their DVDs.

Related Posts from NewTeeVee

Photo courtesy: Apple Inc.

  1. why did the chickin cross the road

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  2. iPods and content are an ecosystem. I was never interested in video until I bought an iPhone during the summer. Suddenly I had a nice small screen to watch movies during travel. Suddenly I needed content. In constrast to music, where iTunes offered a huge selection more cheaply than I could buy elsewhere, the video offerings by Apple weren’t interesting at all.

    I started buying used DVDs and just recently subscribed to Netflix. I’m now watching more movies than I have in a long time and am thinking about buying an AppleTV unit to give me an option for watching on the bigger screen. I don’t want to own video the way I want to own music. A week at a time is enough when it comes to TV shows or movies.

    For me it was the device that’s driving my need for content. I think this was true for the iPod and music as well. We’ll see whether Apple can develop a video supply that is better than Netflix. 12 movies a month at less than $20 is about the right pricepoint. I’d love to see a Netflix model, where for a fixed monthly fee you can have rights to watch 3 or 4 videos at a time.

    http://vornov.com/blog

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  3. I think you are correct, streaming video will strengthen both Apples position as a distributor of content and the value proposition of the iPhone & the iTouch.

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  4. I share same view as that of Ajay !!!

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  5. Nobody Imparticular Thursday, December 27, 2007

    Your site would mortify Orwell. He would see in it all of his prognostications come to life. I am sure it is useful information but does not all this “gadgetry” eventually become waste? Yes, it is a way of capitalizing upon the things that people desire and I suppose in a free market economy this is the law of the land. But what are the long term affects upon our soul? Does it leave some place within the penetralia of our inner life left rusting (a rock unturned)? Is it our eventual ruin as a collective species living on earth? I only raise this point because in Ayurvedic Medicine there is the belief that the microcosm is a reflection of the macrocosm. What if the global crisis (politically and environmentally) we are all currently subjected to is merely a reflection of this deep place within ourself that has been left to rust (all in the name of making a buck)? Food for thought, I suppose. Then again, what would a lonely little Blogger like my self know about the end of the world?

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  6. Nobody Imparticular Thursday, December 27, 2007

    Oh, I forgot to mention, that I am no Saint and am suffering from the same syndromes that we all grapple with every day. This is why I blog.

    http://absurdistry.wordpress.com

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  7. As a consumer, I can’t wait to be able to rent movies and TV series episodes at a reasonable price through iTunes. At the moment, I buy and watch an episode on my TV via the iPod video, and then delete the file. Whoever comes up with a $0.99 TV episode or $2.99 movie rental will have my business. The problem I have currently (with things like Amazon Unbox) is that none of them work outside the USA.

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  8. Nice Article

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