Apple Plans VOD Platform to Placate Studios

Implications: 1. iTunes is cannibalizing NBC home video sales.    2. Apple’s solution: open an iTunes rental / Video-on-Demand platform.

Analysis: Part of the issue NBC has with Apple is that iTunes is cannibalizing home video sales. The model iTunes is utilizing today is one of ownership. The typical home video ownership / rental window usually does not open until the TV season is complete and the studio then can offer the whole season on DVD. By allowing iTunes to make the show available for ownership the moment the show has aired (and also offering discounts on pre-buying the season) is ultimately impacting the very lucrative home video market for these hit TV series.

Apple does have a solution: opening an iTunes rental / Video-on-Demand platform. Studios that already sell movie downloads on iTunes, such as Paramount and Disney, are very interested in the VOD offering. Furthermore, when the VOD service launches, Apple TV could see a huge pick-up in sales. Apple TV has not been able to gain much traction with consumers since its launch last spring.

The licensing terms of the Apple VOD deals would be comparable to the revenue splits with the cable and IPTV players. However, some of the studios are not licensing their content until they can resolve the issue of price with Apple.

Most of the studios have very different ideas about the price of their content compared to Apple and Steve Jobs. Only Disney, where Jobs is the biggest individual shareholder, is selling new movies thru iTunes. For $12.99 the iTunes consumer can own Disney movies and for $9.99 they can own library titles from Paramount, MGM and Lions Gate.