It is called the halo effect. Last year when Apple unveiled its iPhone, the technology and business press fell to its knees in supplication. If Apple does it, it has to be good. Last week, the company announced a deal with all the Hollywood studios that will, from February, see movies offered for rental over the iTunes download service and available for viewing on television through its Apple TV set-top boxes or on portable video devices in North America. There was initial excitement but when the dust cleared the reality was more prosaic. Apple's halo is askew.
Practically speaking, Apple is offering something most cable customers already have - video on demand (VoD). Indeed, according to one studio source, the deal with the major studios is just that: a domestic VoD deal, exactly like the one the studios have had with US cable providers for more than five years. The only substantial difference is that end-users will have the option of viewing their downloaded rental on portable mobile devices.
"It was a refresher announcement on a product that wasn't working," says Mike Lee, chief strategy officer of Rogers Communications, Canada's largest cable provider. He is referring to Apple TV, the set-top box that acts as a bridge between an Apple computer and a television (a new software upgrade, fittingly called Take 2, allows Apple TV users to operate the device without a linking computer). Perhaps Apple is hoping to reignite consumer interest in Apple TV and make money selling hardware rather than through movie rentals.
A big part of Apple's initial appeal in the music field was down to its hardware, the iPod, rather than its software, iTunes. In the video sphere, it faces major challenges on two fronts: while it is often quoted that Apple's iTunes controls 80% of the download music business, those music downloads account for only 12% of total music sales. The DVD sell-through market is another animal entirely. It remains hugely lucrative, which is why the studios negotiated and will guard ferociously a 30-day buffer between a film's sell-through release, and its temporary availability on iTunes.
Also, the service as proposed does not give iPod owners what they get with their music purchases: a copy they can keep.
What Apple does have in its favour is peerless software design: iTunes has been remodeled for the video experience. The interface is undeniably sexy and intuitive. In this regard, they are streets ahead of any cable company.
Arguably, it may be iTunes that makes the video iPod so covetable. Which is part of the Apple halo effect: people may buy it despite itself.
However the price point is enticing - $3.99 for new releases and $2.99 for older films with a dollar surcharge for high-definition (HD) fare - the rental paradigm is counter-intuitive for people who view content on their computers or video-enabled handhelds. The typical handheld or laptop movie viewer is killing time - on journeys or during stopovers - rather than making a dedicated entertainment commitment. Anytime-access is the key and even iTunes' 30-day usage window is short enough to make potential customers think again. Once you hit play, you have 24 hours before the file self-deletes.
Meanwhile, Apple's North American competitors are not standing by idly.
On January 8, at the Consumer Electronics Show, US cable giant Comcast (25 million subscribers) announced Project Infinity, which includes an expansion of its VoD service from 1,300 to 6,000 titles a month, with more than 3,000 of them available in HD.
- In December 2007, US satellite service DirecTV (16 million subscribers) purchased Replay TV, the pioneer in PVR (personal video recorder) technology. The purchase came three months after Replay announced plans to roll out an HD PVR capable of transferring television programmes to video-enabled iPods.
- HBO is rolling out a 'free' broadband offering to cable subscribers who currently receive its service.
- This week Screen International learned Canadian telecom Bell Canada will be launching an online download-to-own movie service as soon as April this year. The Bell Video Store will utilise proprietary software not unlike iTunes to allow broadband customers to buy or rent Hollywood films and store them on up to three licensed media devices.
Moreover, as Rogers' Lee points out: "When you don't have enough of an installed base, you're not much of a player. Anyone in the distribution business is concerned about the number of people who can potentially view the product. History has shown that people don't like single-use set-top boxes."
This is particularly true of an expensive set-top box that requires a costly broadband connection via a service provider that is offering a similar service.
"You need to provide a significant amount of overall value, a mixture of programming, a PVR, VoD and premium product," says Lee. "Consumers want to see value in terms of transaction fees as well as the linear offerings. At the end of the day, that shelf space on the AV rack is valuable and you have to deliver."
There is nothing to stop the various telecoms and cable operators from cutting their own deals with the studios - like any VoD deal, the iTunes deals are non-exclusive - and launching their own download services. Nor does Apple have a lock on video-enabled handheld devices.
Given its track record - not to mention the halo effect - Apple is certain to be a player in the movie-download game. But, says the studio source: "There are an awful lot of players out there in the video space who are going to give them a run for their money."
As a result, all the competitors will have to see whether consumers give them the money to run with.
THE FUTURE FOR DISTRIBUTION
The concept of movie downloads leads ultimately to the notion of direct-to-consumer offerings. Why bother using a distributor in France or Canada to sell a movie when that movie could be sold via download' On some high-definition offerings, studios have dispensed with regional coding. Is it such a large step to a one-source-fits-all approach to distribution'
As chairman of Canada's Alliance Films, Victor Loewy has negotiated his share of distribution deals. He is unconcerned by suggestions that distributors in the future will skip over today's licensees to sell directly to consumers through their computer.
"The film business is risky," says Loewy. "They sell us the territory and we pay up-front. They are laying off risk."