updated 05:00 pm EDT, Tue October 10, 2006
Studios may join iTunes
Major Hollywood studios have been reluctant to follow Disney in offering full-length feature films via Apple's iTunes Music Store, but will likely serve up such movies within the next six months following the holiday shopping season. Such hesitation likely stems from fears of retaliation by major DVD retailers such as Wal-Mart and Target, both of which recently warned key Hollywood players about offering movies at lower prices than DVDs sold at brick-and-mortar outlets. Piper Jaffray senior analyst Gene Munster believes that copy protection may be contributing studio fears, as well as their desire to obtain a more flexible pricing model over Apple's standard pricing. "A couple of the studios indicated that they expect to have content on iTunes within six months, but it may require some tweaks to Apple's pricing guidelines to get them there," Munster said. "We would not expect additional studios to sign on with iTunes before the holidays, however, as most studios recognize that this change could disrupt their holiday business at retailers."
Fears of retaliation from retailers hold considerable weight, as movie studios generate a large portion of their revenue from DVD sales from major retailers such as Target and Wal-Mart -- which by itself is expected to bring in roughly $5 billion in DVD sales in the fourth quarter of 2006. Those retailers fear that studios allowing consumers to purchase full length films from iTunes at discounted rates will undercut the holiday rush for DVDs, severely harming their fourth quarter earnings and possibly disrupting current business models in the DVD market.
Hollywood is also worried -- although to a lesser extent -- about the protection of content offered through iTunes. "For most studios, they are happy to see Disney serve as a 'guinea pig,' and we expect that if Disney's content continues to appear to be relatively safe from casual pirates, other studios will become more comfortable with offering content on iTunes," the analyst said.
Flexibility with iTunes pricing is still a major hurdle for two of the major studios, as both want the ability to price certain movies at a premium to less popular content, a desire also expressed by major music labels such as Warner earlier this year. Those movie studios revealed opposition to Apple's rigid pricing strategy, according to Munster.