The Value of iTunes Video Rentals | iLounge Article

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The Value of iTunes Video Rentals

According to recent reports, Apple will enter the movie rental business in the immediate future—a lower-priced, more consumer-friendly alternative to the more challenging movie selling business it has been trying with iTunes since last year. Consumers, goes the logic, generally watch movies once or twice, and don’t have a need to pay full price to own a film; they’d prefer to pay less, enjoy a quick viewing, then get rid of the video.

The appeal of Apple’s iTunes Store as a conduit for movie rentals is obvious. iTunes is already installed on tens of millions of computers, and Apple has used it to successfully sell billions of songs and millions of videos. There is a large, established customer base waiting for more digital video content, and demonstrably willing to pay reasonable prices to get it.

More importantly, unlike almost any competitor, Apple has a complete infrastructure in place to handle video distribution. It offers services that successfully manage the entire process, from movie encoding and protection to catalog browsing and order transaction to high-speed fulfillment and optimized display on a screen. And it sells desktop, laptop, pocket, and living room hardware capable of performing the video. With modest exceptions, it all works. And though adding the concept of “rental” to the system involves a number of technical challenges, no one doubts that Apple will hurdle them without breaking a sweat.

Assuming an iTunes video rental system will happen—and we do—what’s most interesting to us is the value it will bring to individual consumers, movie companies, Apple, and the marketplace as a whole. Here are a few thoughts on those topics.

* Individual Consumers: Blockbuster Video and NetFlix are currently the biggest players in the video rental business, and depend substantially upon physical DVDs and physical transportation (cars or US Postal Service trucks) for fulfillment and returns. Digital video distribution removes DVD inventory and shipping costs, transforming the old physical fulfillment process into a three-click system: open iTunes’ video section, select your video, and press the rental button. You can do this without leaving your home, and there’s no disc to ship back and forth to a store. Within seconds of picking your movie, you can be watching it, and within seconds of finishing it, you can “return it” without lifting a finger—assuming that the videos automatically expire.

* Movie Companies: Movie companies currently need to make significant manufacturing estimates and investments in order to distribute their videos to consumers: how many discs will people buy? Rent? Copy? Send out over the Internet without permission? With a digital distribution system—at least, one backed by good copy protection—piracy diminishes, as do the significant costs of manufacturing, packaging, and price-adjusting discs that may or may not be sold. A video can be rented an infinite number of times without degradation of the media, and copies can conceivably be stopped, or at least tracked. Profits become easier to measure, as they’re not offset by physical cost-related expenses and deferred losses. And, best of all, these profits are in addition to whatever the companies are currently making from traditional video rentals; as the market shifts from physical to digital distribution, the movie companies can benefit immediately, rather than leaving money on the table or struggling to build their own competing systems.

* Apple: The appeal for Apple as a middleman—neither the movie maker, nor the end consumer—is somewhat obvious, and somewhat complex. It goes without saying that Apple will make at least a little money on every transaction, and benefit from having its preferred media and DRM standards widely adopted. Sales of devices compatible with the movie rental service will increase, as they will have just that much added value to consumers. And products such as the Apple TV, which currently have very limited mainstream appeal, will become more useful thanks to the presence of additional compatible content.

*The Marketplace: The marketplace for video content will benefit in a number of ways from increased competition. Companies such as Blockbuster and NetFlix are already feeling the pressure to offer digital downloads as an alternative to physical rentals, and other companies are entering the digital download market in an attempt to stake a claim on an emerging business. As of today, despite efforts from companies such as Amazon.com and TiVo, the downloading process is more complicated and limited than it needs to be—acquiring movies through the TiVo/Amazon partnership, for instance, is very slow and requires extra steps—and Apple’s entrance into this market will help push other companies to streamline and improve their offerings, as well as offering superior pricing. There is also the real prospect that video quality will improve as well, if the videos rented by Apple are available at better-than-DVD-quality resolutions.

Of course, there are still some questions. Which studios will offer videos through the iTunes Store? How will rentals be priced? Will they play on every video-ready iPod, iPhone, and Apple TV, or be limited in some way? How long will the rental period last? Will there be an incentive to buy a video you’ve just rented? And what sort of quality will the videos (and their audio tracks) actually offer—sub-DVD like current iTunes Store downloads, equivalent to DVD, or better than DVD—like Blu-Ray or HD-DVD quality? These factors, and others, will obviously impact the appeal of video rental offerings, but it’s our guess that Apple will be making smart trade-offs to grow this new business.

There is little doubt in our minds that a reasonably priced iTunes video rental service will be a good thing for virtually everyone—except Apple’s most vocal competitors. Over the next month, we’d expect to hear more details about Apple’s partners, pricing, quality and limitations. Stay tuned.

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Comments

1

I would be one of the first to champion an Apple movie rental service.  I would love to take advantage of Netflix current download-to-rent service, but I have a Mac, for which the service isn’t made.  And there’s no way in hell I’m going back to Windows-ville.  With an Apple service, I’d have guaranteed compatibility.

As for HD-quality downloads, the transfer speeds aren’t there yet.  With current video quality from Apple, I have to wait more than an hour for a movie to download.  I have a very fast DSL connection, and I still find myself impatient when downloading video.  I would be willing to be patient for a DVD quality download, but not 3-4 hours for HD-quality videos.

I think most people have a slower connection than I have.  So, I think the market for HD-quality downloads is too small for Apple or anyone else to pursue.

But speeds will increase, and we will get there.  It will just take a little more time.  Not in 2008, but maybe in 2009 or 2010.

Posted by alexarch in Dallas, TX on December 27, 2007 at 12:37 PM (CST)

2

I agree w/ alexarch, completely! This is a great new aspect for iTunes and one that will greatly appreciated by at least the Mac community, which has been poorly serviced by those who bitch the most about iTunes & Apple.

But the pièce de résistance has got to be the Apple TV. This now takes on a much more regular role in the everyday user’s life like the Mac/PC, iPod and now iPhone have. Hopefully, MacWorld will bring news about new additions and/or features to this product (and perhaps even a price cut!).

Posted by pairof9s on December 27, 2007 at 1:21 PM (CST)

3

I’m very excited about this too. I never bought DVDs before the video iPod because I tend to only watch a movie once, twice if it’s really good. I think it will depend most on the number of studios that get on board. Wait and see.

Posted by urbanslaughter on December 28, 2007 at 12:10 PM (CST)

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