Apple Denied $9.99 Movies at iTunes - Studios Remain Clueless

[Audioholics]

<A href="http://www.audioholics.com/news/editorials/AppleiTunesmoviedownloads.php"><IMG style="WIDTH: 79px; HEIGHT: 100px" alt=[applelogo1] hspace=10 src="http://www.audioholics.com/news/thumbs/applelogo1_th.jpg" align=left border=0></A>Apple Computer is currently negotiating with most major studios to add movies to its iTunes Music Store, possibly in time for Christmas - according to Variety (who claims numerous, though unnamed, sources). It seems the problem is centering around the exact price. Apple wants a flat $9.99 fee and the movie studios, who have never truly understood the concepts of volume, supply, demand or common sense, are absolutely opposed. In case you ever bought into the idea of "hard costs" making up the majority of the CD or DVD retail pricing - this should nail that coffin shut once and for all. With zero production costs, $9.99 should offer more than enough profit for everyone involved (70% in fact, if Apple sticks to its current business model) - but we never accused the studio execs of having any sense before - so why start now.</P>
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[Rock&Roll Ninja]

Who in their right mind would pay $10 for a movie the size of a postage stamp? You can rent the full-sized DVD for less than that.

 

[Audioholics]

Actually, my guess is that Apple is negotiating for HD downloads as well - since they are all about 720p/1080p in QuickTime - but I don't know... Perhaps a single fee and the rights to play on your portable as well as home PC?

And then again, maybe it's just a postage stamp sized video... lol.

 

[kleinwl]

walmart competition

I think the issue is the competition with walmart and movielink. Right now, movies are distributed from walmart between $13 and $50. Movielink also charges "full retail price". There is no way that the movie companies will tick off those retailers AND reduce their profits per movie sale.

I think the movie companies have set their price point to maximize their profits per movie, and though $9.99 could significantly increase demand, their research probably says that price sensitive consumers just rent anyway... so why bother?

This has been really stupid of Jobs to think that he could significantly undercut other retailers. He didn't do that in the music industry (ie. a CD still costs about $15)... and he can't do that in the movie industry.


The other issue, is what was brought up initially, is price discrimination. How are the movie companies going to maximize their profits if they can't sell the same stuff at different prices? Really, do you expect that the movie company isn't going to go for every dollar in your wallet when they have SOOO many ways currently of emptying it?

 

[kleinwl]

Apple Price Discrimination

Actually,

I had an excellent idea. Apple could start price discrimination like Amazon did. Apple can tabulate how much money you spend on movies/music and adjust prices accordingly. Spend more, charge more... see? That way apple and the movie companies can experimentally figure your williness to pay and charge you every possible nickel!

Wow! This is great stuff! Is not the new marketplace wonderful?

 

[kleinwl]

Wow....

I'm just having alot of fun! I thought up some great new ideas!

Apple should start collecting demographic data and selling that to the movie/music companies (if they are not already) just like Tivo!
Look, you can compile all the sales information, match it with the credit report (on the credit card used to purchase) and get locational and financial information. Looking at the credit history, you should be able to estimate age and marrital status. In fact, this should go a long way to compiling exact information on you personally! Then, all the advertisers can target you specifically increasing their response rate and quality of advertisement dollars.

This itunes is a gold mine!!! Viva la "Big Brother"!!!

 

[kleinwl]

Ok guys... no one wants to discuss this with me?

Ok.... let me explain seriously why the movie houses don't want to sell movies for only $10. There are only 113 million households in the us. That means that the total revenue that could be generated in the us is $1.1 Billion dollars in sales. These sales would canibalize the DVD sales. Given a 70% profit share, that means that studios would receive a maxium of 770 Million dollars per movie release.

According to http://www.blogit.com/Blogs/Blog.aspx/readyfireaim/209411
"In 2004, according to Adams Media Research, consumers will spend $24.5 billion buying and renting DVD's and VHS tapes. Almost $15 billion of that will be in DVD sales, and nearly 80 percent of that will go to the studios through their home entertainment divisions.

The explosion in DVD sales has changed the calculus of the Hollywood hit. Last year, "Finding Nemo" sold $339.7 million in tickets when it was released to the nation's movie theaters. It went on to capture a greater amount - $431 million - in home video (including DVD) retail sales and rentals."

Using Nemo as an example, the movie studios captured 80% of $431 ($344.8). This means that for Itunes to provide the same revenue to the movie studios 49.3 million households (43.6% of total US pop) would have to purchase this film. This is practically unacheivable.

 

[Audioholics]

Well, if it were straighth math that woudl be correct. The idea is that the millions of iTunes video users woudl pay $10 for movies they may not buy the DVD for at $16-20. So it's added revenue overall and a different market.

But it takes vision and risk to see that, two things the studios aren't very good at demonstrating. In my opinion, I wouldn't pay more than $5 for a downloadable low-res movie. $10 better get me an HD version that I can play on the HTPC... Then again, I'm not a commuter.

 

[kleinwl]

Well, if it were straighth math that woudl be correct. The idea is that the millions of iTunes video users woudl pay $10 for movies they may not buy the DVD for at $16-20. So it's added revenue overall and a different market.

But it takes vision and risk to see that, two things the studios aren't very good at demonstrating. In my opinion, I wouldn't pay more than $5 for a downloadable low-res movie. $10 better get me an HD version that I can play on the HTPC... Then again, I'm not a commuter.

Clint,

I agree with you that some additional people would purchase at $10 vs. $16-20. The problem that I see and the movie studios see is how do you keep the $10 downloads from canablizing your more profitable $16-$20 sales? If I have the option of the exact same material, I'll go and buy at the cheaper price.

Now, if we set up some differentation, ie. low quality or late release, or something like that, to segment purchasers between the $10 and the $16 sale, that's great. We have set another price point above the rental price, and we are recieving more revenue and have better price descrimination... the problem is that as long as I can sell a DVD at $16 a unit, there is no way I want to lose that sale by dropping the price to $10, even if it's a download.

I think the best way to take advantage of Job's offer is dump the old product on him, "tuner classic movies" and such. Then you may get additional sales without losing the margins for new films.

BTW: I don't think that jobs will even be able to really compete with say walmart on pricing. Walmart can afford to give away DVDs for free... just to get people in the store... Apple doesn't have that luxury.

P.S.S. I for one agree that the movie/music industry is fighting for the "old" business model tooth and nail... and that isn't going to work anymore. But, at the same time, I understand some of their fears and suggest that whatever they come up with will have to be studied and trialed before switching. The risks are too great to expect anything else.

 

[bpape]

I seriously doubt that the $10 download to a portable device would even put a dent in DVD sales and rental business. Whatcha gonna do, hook up your iPod to your video scaler and PJ in the theater? I doubt it.

Bryan

 

[kleinwl]

I think the thing that both you and I, Clint, can agree on is movies are priced "too high". Of course, that is based on the fact that we see actors being paid ridiculous amounts of money for a few weeks of work... and then the movie company making 10x the cost of producing the film.

I agree with that. I also think that sport players, CEOs, and other highly paid people are compensated too greatly for their time. Why is a CEO worth 400x the lowly factory worker?

I think that this is a problem with society and capitalism as it exists today in the United States. There is no sense of "fair play" or comitment to society in general. People are greedy.. in fact they are encouraged to be greedy... and thus if they can take a dollar from everyone's wallet... then they do.

Until something is done to shame people into self valuation to rein in their extravigent lifestyles... everything will cost far more than it's "worth*"

*worth being subject to one's own valuation.

 

[kleinwl]

I seriously doubt that the $10 download to a portable device would even put a dent in DVD sales and rental business. Whatcha gonna do, hook up your iPod to your video scaler and PJ in the theater? I doubt it.

Bryan

I think the issue is that your computer is not a protable device. If the movie is captured at 720p or 480p then it could replace the DVD purchase. If it's only at 480x320 or whatever postage stamp resolution the video ipod has, it isn't worth much at all... and I would agree it wouldn't have any effect on DVD sales.

 

[bpape]

Agreed. But how many people have their computers hooked up to their video system/big screen/plasma/PJ? I'd guess WAY less than 1% of the people who even have anything remotely resembling a home theater - much less everyone else who has the basic 27" and a $50 DVD player.

Again, I really, really doubt that it would even make a dent in the rental business - much less the sales.

 

[kleinwl]

Agreed. But how many people have their computers hooked up to their video system/big screen/plasma/PJ? I'd guess WAY less than 1% of the people who even have anything remotely resembling a home theater - much less everyone else who has the basic 27" and a $50 DVD player.

Again, I really, really doubt that it would even make a dent in the rental business - much less the sales.

I would agree with you that even if the films were HD quality, the rental business would be unaffected... but that's not the market that would be canabalized... it would be the HD-DVD/Blue-Ray market, or the DVD purchase market that would be slowly eroded.

If the studios released HD quality movies on Itunes, I can guarentee you that media centers would take off and DVD purchases would tank. Not all at once... but quickly. It even makes sense economically. Say you can save $10 per movie purchase by purchasing off of Itunes. A good media center can be built for $1200 and that includes DVR features... a media center that just played movies could be built for $500 or less. I think that this would be perceived by most people as a good alternative to going to wally world and buying the DVDs.

 

[ScottMayo]

We all think like home theater buffs and audiophiles. There are people - I don't know many personally, but I know there are a lot of them - who will listen to .mp3s through earbuds, and think they hear music. These people are reshaping the music industry. One of my daughter's friends looked at my CD collection, and looked at me in something like shock. "You *buy* music? Music is *free*."

Movie execs, I promise you, are watching this in terror. There are plenty of people - the equivalent of mp3 listeners - who will happily watch a movie at lo-res from 5 inches away, if it saves them $3 on the cost of the movie. Better still if it can also be upsampled, however poorly, for their TV sets. As things are *today*, downloaded movies will eventually clobber DVD sales, just the way .mp3s are hurting high end audio. Any higher availability of digital content will make it worse.

The other point to consider is that people here are complaining about movie companies making "enough" money, so that they could afford to cut their profits a little. This is nonsense. The decision makers at companies draw some irrelevant salary, but the real and only story is their stock. The value of their stock is what matters and ALL that matters. And if it's forcasted that their company's profits are going to go down - at all - the stock price falls. The owners lose personally AND they get sued by investors, because these days "financial responsibility" is legally defined as "guaranteed continued returns on investment". That's right, boys and girls, you can land in court if your company's value proposition goes down and anyone can prove it was your fault.

So companies don't innovate much anymore. Innovation is risky and risk doesn't carry guarateed returns. Result: companies go to court, buy politicians and do anything they can to preserve an existing business model, no matter how outmoded by new technology, illegal, or stupid it may be. Embrace change? That's 1950s economic thinking. It's a lot safer to buy laws that protect what you have.

*Sigh*

 

[ironlung]

No one mentioned the logistics of manufacturing and shipping a DVD.


20th century fox can just ftp their movie to Steve and its essentially globally distributed.

That has to have a positive effect on the bottom line.

 

[bpape]

I think Scott is right on the money. Most people wouldn't have a clue. Of those that do, very very few will have a PC connected to their system to make their PC any kind of serious shreat to BluRay or HD-DVD.

Why? Convenience.

I don't want to have to boot my AV system in the middle of a movie. I don't want to have to worry about backing everything up all the time for fear of having to lose everything. (this is the generic I now - I already do this since I run a SqueezeBox - but I'm in the minority.)

I'll give you one last example. Of the people who pay attention to music, have a system other than a boombox or iPod - how many of them have stopped buying CDs due to quality downloads being available? How much of a dent has that availability hindered CD sales? Darn near zero.

In fact, it's the LO-REZ download, MP3 crowd that the industry is worried about. That is where they claim they're losing sales.

 

[birdonthebeach]

Scott is correct. And I disagree with the earlier sentiment that Jobs did not seriously lower the price of CD's. Trust me, ask any music industry execs and they will tell you that he turned the industry upside down (and in my opinion, it was a good thing). It has changed millions of people's purchasing habits. Have you noticed the shrinking CD sections at the big box stores?!

I think it is only a matter of time before we see the same sweeping changes in how movies are delivered - it is already happening with tv shows.

As an enthusiast, it frustrates me that everything is going "portable" (translation: SMALLER), but it is reality - just like Scott has said. The mass market seems to be very accepting of the idea of watching TV on an iPod!

 

[slicki]

HD Apple download problem

I too hope desperately for HD downloadable video from Apple. I'll finally have a great excuse to get a Mac. You gotta think though....which product would most likely fit the bill. My guess would be on the Mac Mini because of it's low cost and size. A few issues.

1. No Blu-Ray burner (yet) so burn onto many DVD's with MPEG 4? The 120GB drive (the Mini's biggest) isn't enough to keep more than a few. I would hope to just pay less and have the movie expire cause it's a rental. I hope for the latter.
2. What about the glorious HD sound (DTS-HD / DD_HD)? The Mac Mini only has optical out thus only 5.1 . Here I hope that they replace the DVI with an HDMI 1.3 output. I imagine there's not a big market for this so I'd guess they wouldn't do this. My only hope would be that you could specify if you wanted HDMI or DVI making HDMI and additional cost but I could live with that.

 

[bpape]

Just to play devil's advocate here...

Aren't you frustrated enough trying to keep up with changing standards in the AV world, different connections, copyright issues, standards that take YEARS to get banged out - and then are still restrictive and incomplete?

Now add that to having to bridge the gap between the AV world and the consumer computer world.

How are you going to back up all these digital movies? Get a 2 terrabyte backup solution? $$$$ If not, assuming no HD burners (they'll fight that till the bitter end), what happens when your PC or Mac takes a dump? Gonna DL them all again? Will they keep records so you don't have to pay again?

Also, if they're going to be all PC processed, every time you get a new version of the compression/decoding, you'll need to buy new hardware $$$$ - or tolerate software decoding and all the hassles that go with it - not to mention performance issues on something as dense data wise as HD video coupled with 8 channels of audio.

Sorry - I'll pass. I like to have a hard copy of the software.

As I said earlier, I do run a Slim Devices Squeeze Box. I love it. However, I still have my CD's to fall back on - take to someones home, play in the car, etc. And, it's not NEARLY the storage hog that HD video will be.

Again, just playing devil's advocate.

Bryan