IP Democracy: Apple Aims at Cable's VOD Business

The Financial Times’ Matthew Garrahan has this scoop today about Apple’s plans to launch an online movie rental service, which aims to go head-to-head with cable’s growing VOD business.

The films will supposedly sell for $2.99 for a 30-day rental period (this price has to apply to older films…my guess is that newer movies would be priced much higher and a 30-day rental window seems kind of nutty). The video will come embedded with DRM technology but customers will be able to transfer the downloaded material to at least one other device, such as an iPod or iPhone.

Apple’s iTunes service already sells films for downloading, but the selection is pretty thin and rarely includes recent blockbusters, with the possible exception of films from closely-aligned Disney, because studios fear cannabalizing their lucrative DVD business. The iTunes rental service, supposedly slated for launch this fall, could include top box office hits from all the major studios, much the way traditional video rental stores do.

In a sign that Hollywood has officially moved past its instinctive distrust of all-things-Internet, the studios are “excited” about Apple getting into VOD, although why that might be the case isn’t clear to me. Aside from the traditional concerns over the effectiveness of Apple’s DRM technology, Apple under Steve Jobs has a notorious reputation as a hardball negotiator (just ask the record companies).

Moreover, the portable video-capable device market is dominated by Apple today through the iPod, a level of power that will only intensify wildly if the much-awaited iPhone proves to be an unstoppable success. Giving consumers the ability to watch movies on their iPhones will, in turn, help propel sales of the costly gadgets, further cementing Apple’s status as top dog in the gear-oriented entertainment era.

Apple’s power should give the studios great pause before they agree to hand over their crown jewels to the Cupertino-based giant. However, reading between the lines of Garrahan’s piece, it sounds like Apple is willing to give Hollywood a bigger revenue split than the film industry has been getting from cable’s VOD service. That alone could explain the studio’s sudden warmth toward Apple.

There’s no doubt cable figures prominently in the calculation. Apple’s new service will “compete against cable companies and anyone else offering VOD into the home,” a studio exec is quoted as saying.

All of this hubbub may be premature. The WSJ is splashing a bit of cold water on the idea. According to the Journal, Apple is “aggressively pitching” the idea and some studios, such as Unversal, are opposed to it. “The service is far from a certainty with several details to iron out,” one insider said.

Posted by Cynthia Brumfield on June 10, 2007 11:31 PM to IP Democracy