In striking a deal with Hollywood to offer new movie releases for purchase on iTunes the same day as their DVD equivalents, Apple is making a loss, reports the Wall Street Journal. According to a “person familiar with the matter”, Apple is paying the movie studios a wholesale price of $16 per movie while maintaining its current retail price of $14.99. The reasoning seems to be that in order to grow its movie download business and associated hardware offerings (primarily the newly-vamped AppleTV), the iTunes Store must achieve parity with DVDs, in particular in terms of release windows.
However, turning online movie sales into a loss leader, if true, in order to grow the overall market, without it translating into lower prices for consumers seems a little strange to us. While same-day release windows will be welcomed by iTunes users, pricing is still higher, if not level, with physical DVDs — and yet, consumers are wise to the fact that downloads cost significantly less to distribute than physical media.
We’ve long argued that for online movie downloads, both rental and to-own, to supplant DVD or Blu-Ray sales, they’ll need to be able to compete in three areas: Content, pricing and convenience.
Download stores must be given access to the same content as physical media retailers, including the same release windows, and pricing needs to be lower than DVD or Blu-Ray (for HD content) to offset for lower distribution costs in the eyes of cosumers. Lastly, downloads must offer a high level of convenience, in terms of shopping experience, flexible DRM (or no DRM at all), online backups, and a way to get content onto a TV and portable devices.
Apple has the convenience factor pretty well covered thanks to iTunes and the iPod/AppleTV synergy, parity of content is improving all the time, but pricing, in on our opinion, remains a real issue and potential obstacle to growing the movie download to-own market.