Forbes: Pricing remains key sticking point between Apple and film studios

“Steve Jobs says consumers don’t want to rent music, which is why his iTunes store only sells songs that consumers download, then own. Yet he’s now trying to get major film studios to let him launch an online movie rental business,” Louis Hau reports for Forbes.

“What gives? There’s the most obvious reason: Consumers already get the concept of renting movies, whether they do it at their local Blockbuster or the mail-order business that Netflix pioneered,” Hau reports. “But the overriding factor appears to have less to do with consumer behavior than it does the vastly different environments in which the music and film industries are operating.”

“Clearly, the music industry is in far worse shape… Comparatively, film studios are doing pretty well. U.S. box office receipts are on the rise, and while DVD sales have been slowing, they have yet to actually decline,” Hau reports.

“In a reverse image of Jobs’ relations with record labels, it is the film studios that are in the driver’s seat when they deal with iTunes. That’s been clear ever since Jobs added movies to iTunes last fall. His first preference wasn’t a rental service–it was to sell movie downloads,” Hau reports. “The pressure on Jobs to supply more movies to iTunes has been ratcheted up several notches now that he has finally launched the Apple TV settop box, which can play iTunes video content on a TV set.”

Hau reports, “Pricing remains the key sticking point between iTunes and film studios, because the studios are leery of doing anything to weaken the enormously profitable sales of DVDs.. iTunes reportedly wants to sell movie rentals for $2.99 a pop with the ability to play each title for 30 days… if Apple and the studios can work out a deal on pricing, Jobs may just get the expanded roster of movies he wants.”

Full article here.
We’ll reiterate a recent Take on this subject: Business models that fly in the face of human nature are doomed to failure.

Most people like to listen to favorite songs over and over. They like to own these songs, so that they can play them over and over. They do not want to pay someone an unending monthly rate in order to be allowed to hear their favorite songs.

Now, for the limited amount of people that would like a music subscription, Apple should offer it – if it makes business sense (i.e. development and operational costs are less than profit potential).

Regardless of what happens, the fact remains: The music labels only want subscriptions to succeed because they dream of a recurring revenue stream, not because music consumers desire such a service.

Now, for TV shows and movies, a subscription service makes perfect sense because it better fits the way people consume those types of content than does outright purchasing. Not to mention, where do you store all of that content that you own, but are only going to watch once or twice? Most people can count the number of movies they’ve watched three or more times on their fingers.

We believe the vast majority of people want what we want: to buy and own music and to subscribe to a TV shows and movies plan via Apple’s iTunes Store.

21 Comments

  1. If price is the only issue, they will probably be able to strike a deal. I would be willing to pay a little more (i.e., $3.49 or $3.99), and I think many others would as well. I wouldn’t even mind if the expiration were 7 days rather than 30. Maybe Jobs was smart enough to make an opening bid and expect to compromise? If he proposed $3.99, I bet the studios would be asking for $5.99!

  2. I don’t understand why this is an issue… I can rent movies on direct tv for $1.99 to $3.99, albeit, thats only good one viewing, or at most a 24 hour viewing. I love the idea of making the movies portable, so that you can take them with you on a plane trip, etc.

    I’d probably buy an Apple Tv if they add this service.

  3. I’m in exactly the same camp. I prefer to own my music, but rarely do I want to see a movie more than once or twice. I own tons of CDs and iTunes songs, but probably only 5 DVDs.. I prefer to rent my movies.

    What I don’t get though, is the movie studios’ reluctance to sell the movies digitally.. I don’t really want to buy them, but some people do. Yes, DVD sales are lucrative, however, with a digital download and a sales price that’s nearly equal, they should be making MORE money, since there is no cost for the discs, packaging, printing, and distribution of DVDs.. Encode once and sell sell sell.. I don’t get it..

  4. HD would be the selling point. I don’t want to buy a effin blueray player or HD-DVD player. I’d buy and AppleTV and rent HD movies and shows in a heartbeat…if I bought a HD TV though. That would help me buy one though.

  5. The MDN take that: “Business models that fly in the face of human nature are doomed to failure.” annoys me a little bit.

    Not that I disagree with their conclusion. Just that I think it’s not as easy to identify “human nature” as MDN thinks it is.

    After all, Apple has, again and again, created offerings that fly in the face of market research. What people think they want and what they’re actually willing to pay for are two very different things. One of Apple’s strengths has been their ability to identify the core consumer needs and package them in an intuitive interface.

    Let’s not be smug and dismiss others because their strategy fly’s in the face of human nature. It’s identifying “human nature” that’s the challenge.

  6. The market for a new release rental is between $3.50 and 3 days (Hastings) and $4.50 and 3 days (Blockbuster).

    I’ll guarantee that the studios are holding out for $4.50 (min) and 3 days (max). I’ll also guarantee that Apple is pressing for 30 days in order to get a rental rate lower than $4.50.

    Me? I’d pay half the purchase price for no more than 2 days. How much time do you have to waste in a 3 day period, that you would watch the same movie more than once? How much is the convenience of not having to go to a video store and getting your movie up to 3 days faster than Netflix?

    Anyway, I think you are going to see an agreement, if the reports of a pending deal are true, in that range.

  7. There are plenty of movies I’ve seen multiple times, but I get all of HBO/Cinemax, Showtime/TMC, and Starz/Encore from my cable company and will mindlessly fall asleep to whatever sci-fi/comic book/gangster movie happens to be on one of those channels when I’m ready for bed.


  8. What I don’t get though, is the movie studios’ reluctance to sell the movies digitally.. I don’t really want to buy them, but some people do. Yes, DVD sales are lucrative, however, with a digital download and a sales price that’s nearly equal, they should be making MORE money, since there is no cost for the discs, packaging, printing, and distribution of DVDs.. Encode once and sell sell sell.. I don’t get it..

    …and don’t forget that with DVD sales, people can buy and sell them used on ebay, half.com, and amazon.com. They can’t do that with VOD or itunes purchases or rentals. That’s another reason why the digital delivery should be considered an even smarter way to go.

  9. If Apple got into the music rental business, it would be bad for two reasons:
    1. it would be the nail in the coffin for all the Napsters out there. Apple needs the perception of competition and differentiation.
    2. it would expose Apple to accusation of monopolistic practices by using its power to crush the download competitors.

    This is not the case for movies. There are many profitable businesses for movie sales and rentals. This is likely to remain the case since you can’t as easily rip and email a movie like you can a song, especially as we move to HD.

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