Internet/Telecom/Social Media

Apple rents movies – and crickets chirp

Apple recently announced that they’d be renting movies via their iTunes service. As a result, I’ve started seeing analysts saying that this was going to make Apple even more dominant than they already are. After all, people are going to want to watch their iTunes-rented movies via their iPods, their Macs, and even on their iPhones, dontchaknow. So the analysts are saying that the iTunes movie rental experience will usher in a paradigm shift from DVDs to streaming.

If you’ve been an observer of the streaming video market over the last few years, you’ll have seen several false starts. Most of the early companies into this market failed for one simple reason – there wasn’t enough bandwidth to enough homes to justify the business model. This has changed dramatically in recent years with the mass adoption of broadband internet connections via cable modems and DSL. But the first power company out of the blocks, Amazon.com, has gone precisely nowhere with their Unbox service via network-connected Tivo boxes. Apparently Apple designed a way to get their products to your TV, AppleTV, but so far as I can tell, it’s even less well regarded than Unbox is (seriously – I discovered it today doing research for this blog, and I’d at least heard of Unbox before), and there’s rumors that Amazon will squash Unbox. And Netflix has partnered with LG Electronics to manufacture a Netflix streaming set-top box for their free (with a mail-order DVD rental subscription) movie downloads.

In other words, streaming movie distribution is coming, but it’s not a paradigm shift – it’s been a slow, inexorable evolution from year to year. Yes, AppleTV version 2.0 enables you to avoid downloading to your Mac before watching that rented movie, but is it really the “landmark event” in this evolution? I don’t think so. Neither does the stock market, which beat up Apple’s stock right after Macworld – sure, it was a bad day for the market in general, but Apple fell more than the market average after what must have been considered wildly underwhelming new product announcements.

And besides – movie watchers tend to like watching their movies on big TV screens, not iPods, iPhones, or even computer monitors. AppleTV may work, but that depends a lot on the other factors of the iTunes movie rental package, like the fact you have only 24 hours to watch your rental once you’ve started (a model that Blockbuster abandoned for their physical rentals years ago and that Netflix never had) before it disappears and the 30-day delay after DVD release before iTunes gets to stream their movies. Neither restriction is exactly viewer-friendly, and either could seriously hamper the success of Apple’s rental service.

I think that the market still isn’t ready for digital streaming, but I don’t mean the consumer market – consumers want their movies off the internet and on their TVs with full HD picture and 5.1 sound, and most of the required electronics either exist already or will within the next year or so. No, I mean the movie market, specifically the industry heavyweights of the MPAA who are as locked in a pre-download mentality as the RIAA members are for music. The music industry is only now finally realizing that they have to adapt or die, and the restrictions on Apple’s new movie streaming service illustrate that the MPAA hasn’t yet learned from RIAA’s mistakes.

For all our sakes, I hope the movie industry has a sharper learning curve than the music industry – RIAA still hasn’t figured it out yet.

9 replies »

  1. Interesting.

    I don’t think the film industry will make the same mistake the music industry has. I think they realize that prosecuting their user base is not in their best interests. Plus, films tend to be a “view once” or “view once in a while” medium, unlike a good song or album, where you listen over and over until you get sick of it. It makes it a very easy buy-or-rent decision for consumers, which in turn, makes it easier to price your hardcore vs. casual market.

    I don’t think Apple will have much of an impact though. Movies are typically a sit-at-home or sit-in-a-theatre, intimate experience. You don’t like to be interrupted. You plan your 1 1/2 to 2 hour time sink and you indulge in it. Their service will be good for shorts and TV shows … You Tube fodder. Mobile devices tend to only do well with casual gamers or viewers.

    I have been impressed with Microsoft’s Xbox Live network though. You can rent movies in standard or HD for a reasonable price. It streams quickly and looks nice. Other networks are popping up to tap into the same market.

    However, it’ll be interesting if ISPs intervene to ruin it. According to MSNBC, Time Warner is planning to test market a pay-for-your-usage high speed internet plan in Beaumont, Texas (http://www.msnbc.msn.com/id/22707271/). I expect consumers of movie and music downloads, iTunes, MMO games, and pirated software will hate it. It remains to be seen if the advertisers for firms that own these services will sting Time Warner for trying to devalue their interests.

  2. A little analysis please on netflix/apple please…

    Engadget notes an article in the New York Times discussing the substantially different markets that Netflix and Apple’s movie rentals are aiming for. The site views the loosening of Netflix streaming restrictions as a reaction motivated entirely by the iTunes movie rental announcement, but beyond that the two services seem to have little connection. From Engadget’s observations: “After speaking with Netflix’s Reed Hastings, it was found that the vast majority of its streamable content was ‘older,’ and considering that users of this service can never look forward to brand new releases being available, the cost (i.e. free to most mail-in subscribers) makes sense. As for Apple, it’s able to focus on crowds who are looking for a more robust, generally fresher selection, but of course, you’ll pay the premium each time you indulge. Furthermore, Netflix has yet to make transferring video to any display / device other than your monitor easy, and while an LG set top box is indeed on the horizon, the differences in content selection are still likely to lure separate eyes.”

  3. All of the existing services have severe limitations. Netflix and Unbox can’t even deal with a Mac, which in this day and age is fairly pathetic. This is about evolution, not only does the hardware/software/network need to evolve but so do the business models.

  4. I think the market for watching movies on PDA type devices might be the business traveler. The airlines rarely offer an inflight movie, and when the do, the selections leave a lot to be desired. Worse is sitting in the airport waiting for a delayed flight. I don’t think these people will be a sufficient market by themselves, but I think if I could download a flick before I left for the airport, and then watch it at my leisure, I might do it. On the other hand, I still prefer reading…

  5. So, I’m a linux user and developer… and I’ve been an open source advocate and developer for nearly 10 years. Of course, I don’t expect many to believe me, but it will matter to the few that do.

    Apple is a very savvy company, and I think you are seriously underestimating their strategy by ignoring the macbook air as part of this. Concentrating on the Apple TV (which I find it hard to believe anyone watching the market hasn’t heard of…but whatever) is a mistake. Jobs himself said that ATV was a “hobby” and not their part of their main business strategy.

    Instead, they are using the same strategy they used when they introduce the iMac in the late ’90’s.. a move that credited with saving Apple’s bacon.

    Back then they introduced a computer with no floopy drive and no serial ports. A the same time they started offering their .mac service that let you upload files and transfer them to a local computer. Basically fulfilling the role of what floppy disks or zip drives were used for at the time… file transfer. And despite what many analysts and tech-heads said at the time, the iMac was and continues to be a wild success.

    So, this week apple introduced a laptop with no optical drive. The rentals are meant to make up for the loss of being able to pop a DVD in the drive while pointing more coin in Apple’s pocket. The iTunes rentals may APPEAR to be about the Apple TV, but they are all about about the star of MacWorld ’08… the Macbook Air… the worlds thinnest laptop, no optical drive, made as green as apple has ever tried… and made even greener by the fact that you don’t by dvd’s (and the associated packaging) for it, instead you stream it.

    This is a brillant strategy aimed at teens and affluent hipsters who are worried about more then the tech side of things.

  6. LinuxFan – you’re kidding me, right? Ultraportable or not, the Macbook Air is still a laptop computer. It has a small screen (13.3 inches) and the standard headphone jack, nothing more. Will it be nice for traveling? Sure, but you can buy subnotebooks for similar prices from Dell that will run more business software (and at $3k and up, this computer can target hipsters, but precious few teens can afford the price for this computer) and have a larger screen to watch the same movie – or any number of others you can rent from Netflix or Blockbuster.

    As someone who occasionally watches movies on my computer, I focused on AppleTV for a reason – watching movies on a computer sucks, and laptops are the worst. You can’t get the audio or visual experience from tiny, tinny speakers and a small screen that you can from my decade-old 38 inch CRT TV, never mind a newer 16:9 large screen with 5.1 audio. Apple will get the most eyeballs for their streaming via people who have disposable income, and those people will not generally be watching their movies on a computer unless there is no other choice. And most of those people are not teens – they can’t afford the price of entry ($3k+ for the Air), they generally choose not to afford the price of the movie (BitTorrent), and so Apple will not get a significant economic boost from them.

    Unless Apple is making a 5-10 play here and is willing to lose money or break even for at least 3-5 years, they’ve made a bad decision – unless they’re targeting their AppleTV box or are willing to permit Tivo or Dish DVRs to access iTunes rented movies.

  7. Linuxfan – Somehow your comment got marked as spam by Akismet and I clicked the wrong button, so I had to cut and paste a copy to recover it here. I’m sorry about the screw up on my part.

    ——
    From Linuxfan:
    Brian —

    No, I’m not kidding. This is not about how *you* like to watch movies, and that is the crux of the problem with your analysis. Don’t think about you sitting in your home office in front of your laptop/desktop/whatever, hunched over and uncomfortable. (And yes, I agree given the choice I’ll watch my movies on my TV.)

    Think about the computer consultant or tired executive who has to fly back and forth across the country and want something to do on the plane. Think about the college student who doesn’t have room for 38″ TV with 5.1 surround sound. Think about…

    You get the point, there are plenty of markets where this move makes sense for Apple, and since it is such a dominate force in the digital download of music, TV and films already… it is reasonable to think that when these roadwarriors, students or whatever think “Hey, I want to rent…” a goodly portion of them are going to turn to iTunes first. (Well, the small minority that aren’t going to just pirate the movie off of bittorrent…)

    BTW, I’m not sure why you imply that I said the macbook air was anything more or less than a laptop. I didn’t. I pointed out that the major flaw with that model of laptop was addressed by the iTunes rental.

  8. This is not about how *you* like to watch movies, and that is the crux of the problem with your analysis.

    I can appreciate that my own biases could be a problem here, but that’s why I went through the exercise of pointing out that the teens you mentioned (and college students too) couldn’t generally afford the $3000+ pricetag of the Macbook Air. Other, less expensive laptops, sure, but not the Air. Subnotebooks are really bloody expensive….

    I live in the Denver metro area and my extended family is on both coasts. As such, I fly a decent amount, so I understand that market might be better served by an iTunes rental program than by a DVD rental. I’m not sure about that, personally, because airplanes are a great place for me to watch my languishing Netflix disks, but I do understand your point. I’m just not convinced that it’s the huge market discriminator that I think you’re implying.