Apple CEO Steve Jobs confirmed this morning its long-rumored entry into the online movie rental business, saying it had deals with all the major Hollywood studios to offer downloadable films for $2.99 (older titles in standard definition) to $4.99 (new releases in high definition). The company's approach is plagued by many of the same studio-imposed problems that have burdened pioneering download sites Movielink and CinemaNow, but it also has a couple of advantages unique to Apple.
The problems start with the delayed availability of movies. Apple won't get them until 30 days after they were available on DVD, by which time most of the hunger for a title has been sated. The studios still view downloads as "video on demand," a form of release that's delayed so as not to cannibalize DVD sales. You could argue that rentals pose no real threat to "sell-through" because people who want to watch a movie once won't buy it, and people who want to buy a movie won't bother to rent it. You won't hear that argument coming from a studio exec responsible for hundreds of millions of dollars in DVD sales revenue.
Another issue is the paucity of titles available for rent -- "over 1,000," according to Apple's press release. That's bound to grow over time, but the studios do have the annoying habit of withdrawing titles from the downloadable-video queue a few months after their release so they can be offered exclusively to some other venue. So it will be hard for Apple to position iTunes in the most compelling way -- as the ultimate online video jukebox -- because it can't offer every title that someone might want to watch.
A third factor is usage restrictions placed by studios. A movie downloaded from iTunes must be played within 30 days, and it self-destructs (Mission:Impossible style) 24 hours after the first playback starts. That's much less attractive than the terms offered by video rental stores, and it's particularly problematic for kids' movies, which typically get viewed repeatedly over the course of a week before being returned.
The biggest problem for downloadable movie sites is that most people want to watch the movies they rent on their biggest TV screen, not their computer monitor. The easiest way to move downloads from the PC to the TV is to burn them onto DVD, but only one studio -- Sony Pictures -- has embraced a solution -- from DivX -- that would enable a rented title to play on millions of home DVD players.
Last year Apple introduced the Apple TV, a $299, easy-to-use set-top box that could wirelessly connect to a computer and copy certain song and movie files, most notably those downloaded from iTunes. Sales were so tepid, however, that Jobs referred to the device last year as a "hobby," not a business unit. This morning, he announced two improvements that should boost the Apple TV's fortunes: the ability to download and play movies from the Internet without the help of a computer, and a $70 price cut. Still, consumers don't like set-top boxes, particularly those that cost more than $100 -- witness the recent demise of MovieBeam and the struggles of Vudu, two movie-on-demand services that required users to pay for a new box as well as the movies they watched.
Perhaps Apple's greatest advantage is that millions of people have iPods and iPhones that will work with the new movie rental service. Those, too, can be connected to TV sets and other larger screens with a little bit of effort, although they deliver only DVD-quality pictures, not high-def ones. The proliferation of iPods may be enough for Apple to gain a foothold in the rental market while waiting for more Apple TVs to be sold, but as its predecessors will attest, it's a tough field. And the parameters Apple doesn't control, such as release dates and usage rules, may be the ones that spell the difference between success and failure.
-- Jon Healey
Apple TV image courtesy of Apple