Richard Koman, newsfactor
"We're thrilled to bring iTunes Store customers new films for purchase day-and-date with the DVD release," said Eddy Cue, Apple's vice president of iTunes. "We think movie fans will love being able to buy their favorites from major and independent studios."
The deal covers DVD releases from 20th Century Fox, The Walt Disney Studios, Warner Bros., Paramount Pictures, Universal Studios Home Entertainment, Sony Pictures Entertainment, Lionsgate, Image Entertainment, and First Look Studios. New releases are priced at $14.99.
No Waiting
"This is a game changer," said Craig Kornblau, president of Universal Studios Home Entertainment and Universal Pictures Digital Platforms.
Analysts hailed the deal as another boon for Apple, which is already the largest seller of music. Apple has sold four billion songs, surpassing even Wal-Mart's volume, the company said last month. "People want to watch a movie as soon as it comes out, and they don't want to have to wait," said Michael Gartenberg, an analyst at JupiterResearch. "What Apple is doing is knocking down one more barrier for why you wouldn't want to buy a movie from them."
As with music, Apple's integration of iPods and the iTunes Store gives the company an "ideal platform that should give them a completive edge," said Tim Bajarin, principal analyst with Creative Strategies, in an e-mail.
Loss Leader
"The Internet is a growing channel and one that many believe is the ultimate future of entertainment distribution," said Ross Rubin, an analyst at NPD. "For Apple, it's another step in reaching parity with the retail DVD market."
It is apparently an expensive step, however. The Wall Street Journal reports that Apple is paying the studios $16 per film and selling them at a $1 loss. Michael Learmonth, writing on Silicon Valley Insider, noted the deal marks a new strategy for Apple, although a time-tested one for traditional retailers: the loss leader. "While big boxes like Wal-Mart and Best Buy have been happy to use media as an outright loss leader, [Apple CEO] Steve Jobs has previously tried to break even or better with iTunes sales," he wrote.
If Apple is taking a loss on the deal, the studios are not. The news of the deal was first revealed Wednesday by Time Warner CEO Jeff Bewkes, who crowed, "Taking a customer and moving that person over from rental to VOD day-and-date is like a 60 to 70 percent margin instead of a 20 to 30. So it's about a three-to-one trade."
But even in this "highly contested market," Bajarin said, "given their strong relationship with the studios and the ability to tap their installed base of iTunes users, it would not surprise me if Apple eventually ends up with 30 to 40 percent of the online movie market."
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