Hollywood's uneasy embrace of Apple's 99-cent TV rental offer [Updated]

Only two major Hollywood television studios agreed to allow Apple Inc. to offer 99-cent rentals of TV shows -- a price that the device-maker hopes will spark sales of a new generation of its set-top box.

Walt Disney Co's Disney/ABC Television Group and News Corp.'s 20th Century Fox joined in Apple's long-anticipated announcement that it would begin renting episodes of such popular shows as "Desperate Housewives," "Grey's Anatomy" and "Glee."  The offering was announced in concert with the re-envisoned Apple TV, a smaller and less expensive version of the device that brings iTunes video content to the television, which now costs $99.

Fox issued a carefully worded statement indicating that its participation was a limited trial, lasting "several months," reflecting the deep divisions within the company over the wisdom of dramatically dropping the price to watch TV shows on Apple devices from as much as $2.99 an episode.

(Update 9:10 p.m. Peter Rice, chairman of entertainment for Fox Networks, issued a statement applauding the Apple TV initiative. "We're always looking to explore innovative and creative ways to reach and engage our viewers on digital platforms, which makes Apple a perfect partner," he said .)

Most major television producers, including CBS, NBC, ABC, Warner Bros, and Sony Pictures, aren't part of the 99-cent rental deal. Nor are powerhouse cable networks Showtime and HBO. Each has a vested interest in protecting their existing businesses, which brings billions of dollars into the TV industry through cable and satellite subscriptions and advertising revenue.

Alan Gould, an analyst with Evercore Partners, a Wall Street brokerage firm, wrote in a report that studios know they need to provide a reasonably priced, online version of their content or illegal downloads will become pervasive.

"However, that does not mean the studios have to provide the product at a long-term money-losing price," Gould wrote. "We recognize there will be some incremental revenue from downloads, but assume most viewership will be a substitution for traditional TV viewing and hurt the long-term TV business model."

Particularly worrisome to some major TV producers is the idea that offering commercial-free versions of a TV episode for just 99 cents will gut sales of DVDs. That's because renting an entire season of a popular show "CSI: Miami" through iTunes would cost less than $24 -- a fraction of the $50 or more consumers now pay for the DVD (or a season's pass on iTunes).

In addition to television shows, Apple TV also lets users rent movies at prices ranging from $2.99 for standard-definition library titles to $4.99 for high-definition new releases. At his newsconference, Jobs emphasized HD video, a strategy the company has followed in the iTunes Store as well, where buttons to buy or rent content in hi-def are front and center, while standard-definition options are tougher to find. That's a concession to studio demands that Apple push the more profitable versions of their content, according to people familiar with the matter.

Despite the concerns of many in Hollywood about Apple's clout and its emphasis on low prices, content creators will benefit if Jobs' firm is able to expand the nascent business for distribution of legitimate, nonpirated, digital content in the home.

"The studios or content owners know they get more revenue through DVD rentals," said Paul Verna, a media analyst with researcher EMarketer. "On the other hand, the DVD business is dwindling. i think this is a recognition of that."

 -- Dawn C. Chmielewski and Ben Fritz

Related:

Revamped Apple TV to offer 99 cent shows

Murdoch may be key to Apple's plan to offer 99-cent digital rentals of TV shows

Photo: Apple CEO Steve Jobs announced the release of the new iTV, which replaces the larger, more expensive version. Credit: Ryan Anson/AFP/Getty Images

Comments

[Rob S]

In my household Apple TV doesn't displace cable, it supplements it. 99 cent rentals will simply encourage me to stream more from the apple TV to catch missed episodes or seasons or re-watch ones that I liked. I'm also a Netflix subscriber and am looking forward to using the ATV in lieu of my computer for Instant Play titles. It all works together, nothing is displacing anything. Even Hulu simply supplements.

[wholesale Burberry Handbags]

Interesting. I had no need to edit my template's HTML because it was already in the format you suggest.

[KS2 Problema]

Are they really trying to suggest that there are a significant number of people willing to pay $3 an episode to rent a season's worth of individual shows?

Hell, some of these shows are so bad, you look forward to the commercials because at least the commercials are well made.

[Ajay]

"The studios or content owners know they get more revenue through DVD rentals," said Paul Verna, a media analyst with researcher EMarketer. "On the other hand, the DVD business is dwindling."

DVD's will go the way of the LP's, 45's 8 tracks, laser disk, cassettes, and CD's.
I have a stack of blank CD's I have not used in 3 years.
Blueray? Hah! The format will be dead under a decade. I'm still have my 7 year old combo VHS/DVD player, and have not used that in over 2 years.
I use the original ATV to rent movies and it works just fine. Blockbuster is filing for bankruptcy, so the writing is on the wall, and hollywood know it, and they are just mad because they were to lazy to come up with original ideals.
Netflix, their market share is large, however, they are now streaming just about the same amount each month as sending out DVD's.
The new game in town is streaming...., but Hollywood refuses to give out content, because they are the lowest common denominator now. They have no horse in the race, and are paralyzed by their own incompentence to roll the dice and go in a forward direction. Hollywood...., meet the record companies, and join them in the dustbin of technology.

[De]

Um, who on earth is still paying $50 for TV-DVD Boxset? Nowadays, unless it's TV-BD Boxset, the DVD boxset usually goes for around $40 on first week, and often on sale for $20, which is the price I pay for most of the boxset in my collection, and I have loads of them. That's boxset I own, not rent, and there will always be a market like this, so studios are really just making excuses because most of the time, almost always, buying DVD is cheaper than iTunes Season Pass.
I will always choose physical media before streaming, however, I know the world is moving toward cloud-based media. Until our network infrastructure upgrade to the standard that can offer consistent high quality full HD streaming with no wait and no hiccups, I'm happy with my DVD and BD. Now, I agree with Rob, devices like Apple TV, services like Hulu and Netflix are all supplement to cable at this point. I love the on-demand nature of these services when I miss a few episodes, or for sampling other shows I might want to check out.

[MJ]

$24 on iTunes to watch an entire season is more than $10 on Netflix or Hulu Plus. I don't see what the big deal is here with studios.

[Bill]

I am not sure what the issue is with Holloywood. They seem to think that $0.99 is going to undervalue their content and jeopardize their cable TV income:

1. If an ABC viewer rents just 1 episode of a TV show a month from AppleTv (or similar), ABC gets more money from that viewer than they get from most cable companies (actually now they get $0 from the cable company but ABC are trying to change that). Having Apple rent a show for $0.99 should strengthen ABC's hand in negotiations with cable companies not weaken it. In fact average cable rates per customer per month per channel range from $0.01 to $0.99 for almost every channel (avergae ($0.20) with the exception of ESPN and Fox Sports ($2-5 for those). Most are about $0.25 per month.

See: http://mediamemo.allthingsd.com/20100308/hate-paying-for-cable-heres-the-reason-why/

2. As has been pointed out the issue is not cannibalizing DVD or cable sales (i.e getting $24 instead of $50). The issue is that the DVD or cable sales WILL be replaced by piracy. So the studios will have $50 turn into $0. Only last week a friend showed me how easily he downloads episodes of True Blood from utorrent. He does not pay for premium channels and refuses to. If the studios refuse to provide a competitive online price then I may join him so I can ditch cable.

3. I accept that there are some extra costs in going through Apple (30% cut) but this is probably lower than the cable companies cut. I also accept that a la carte will net less than bundled channels. But if the average (good) channel gets $0.50 per month per subscriber from cable companies then it should be possible to rent individual shows for $0.49. If a viewer watches just 4 shows per month on a channel, that channel will get 3 times what they get from cable.

4. Parenthetically, I HATE sports. Why do I have to pay the extortionate fees for the sports channels in the bundled model? Once this model is cracked, I think the amount that professional teams will get from broadcast rights will fall dramatically. I'm happy to spend my money on high quality drama. The main reason I want to ditch cable is having to pay extra for stuff I NEVER watch.

[Jillybee]

I use to buy DVD every Teusday regardless if I watched them or not at at price of $15 - $19.99. My husband love box sets because he can just watch his shows for hours without the commericals. Now I stream from netflix, hulu or playon. My Directv service is at a minimum because there is really nothing to watch on it. I have never rented a movie from Amazon or Apple because I refuse to pay $2.99 or above. However, I am more than willing to rent an episode for .99 cents. As always, Job is a foreward thinker. I see the studios making more money this way because consurmer will be willing to pay .99 cents for move rental instead of trying to download crappy copies.

[Shazam]

"Hollywood...., meet the record companies, and join them in the dustbin of technology." Ajay -- you are so right!

Those that do not learn from history are bound to repeat it. Hollywood has obviously learned nothing from the decline of the record industry.

[sleepdawg]

@Ajay @Shazam
Actually, Hollywood studios have learned a thing or two from the record industry's failures.

Through trade associations like the MPAA and law firms, they are aggressively pursuing the pipelines of distribution, the ISPs, instead of individual users. They are responsible for the throttling that happens to torrent ports, and they are actively pursuing agreements with the cyberlockers like Rapidshare that host all the free traded movie content.

Onerously, they are contributing large sums to politicians around the world to introduce legislation that will allow policing of the data you download. They are also negotiating behind the scenes to quietly introduce fees into the ISP cost so you'll be charged for content whether you watch it or not, like cable.
It happens now with blank physical media like CDs and DVDs, and it will happen in the data transmission arena as well.

The powers that be are busy. And they like consumers who are obedient and quiet.

If you really want to see studios go the way of the dinosaurs, stop going to movies. Stop watching them. Stop buying things. It's the only sure bet.

[CR]

Incredible that they consider 3$ for a standard def movie rental "cheap". Thank god for Redbox/bittorrent.