iTunes offering movie downloads on DVD street
By Jennifer Netherby -- Video Business, 5/1/2008
MAY 2 | Apple announced deals Thursday with every major studio to begin selling permanent new release downloads on iTunes at the same time as the film’s DVD release. Key to the breakthrough, studio sources said, was Apple’s willingness to pay wholesale costs in line with those of DVD.
20th Century Fox Home Entertainment’s 27 Dresses was the first day-and-date download on the service this week, but all major studios along with mini major Lionsgate, Image Entertainment and First Look Studios said they would immediately begin releasing films through iTunes.
Apple launched movie downloads in 2006 and dominates the market, but until recently Disney was the only studio to offer new release movies for sale on the service in the DVD window. Fox and Paramount Home Entertainment this year had begun to experiment with new releases for sale on iTunes simultaneous with DVD.
The move puts iTunes on equal ground with rival digital download services Amazon Unbox, CinemaNow and Movielink, which have sold new releases from most of the majors day and date with DVD since 2006.
In addition, Universal Studios Home Entertainment, Fox, Warner Home Video and Sony Pictures Home Entertainment have begun offering catalog films through the service. Paramount and Lionsgate already sell catalog films on iTunes.
Most studios and Apple had been unable to reach agreement on new release pricing. Apple was unwilling to pay the DVD wholesale costs studios wanted for digital copies, and studios were uncomfortable with the lower-than-DVD price at which Apple sells downloads.
Apple finally budged, one studio source said, noting that the company agreed to pay the studio so that its digital wholesale costs are in line with those of DVD, minus packaging and shipping costs.
Although Apple hasn’t raised the price it will charge consumers ($14.99 for new releases, $9.99 for catalog), one studio exec said it has become clear that consumers view packaged media as a premium offering over digital downloads rather than an equal-valued competitor.
Studio execs also pointed to the success of rental downloads on iTunes for the expansion into new release sales.
“We just think it’s the right time in the marketplace,” said Thomas Gewecke, Warner Bros. Digital Distribution president. “We’re seeing increasing video usage on all platforms; we’re pleased with the progress and growth of [video-on-demand] on iTunes.”
Apple reached a deal with all the major studios to offer movie rentals through iTunes in January, though rentals are in the pay-per-view window.
Indie Image said it has offered iTunes day-and-date releases for a while, but Apple waited to add the majors before launching a full-fledged day-and-date service.
“Ultimately, they are trying to build the most popular video store,” said Burgess Wilson, senior VP of digital operations at Image.
Studio execs said Thursday’s announcement opens up the digital business.
“This is a natural progression in the growth of the home entertainment business and a natural evolution of delivering content to consumers,” Lionsgate president Steve Beeks said.
“To have all studios lined up, day-and-date on a sexy system that consumers have a passion for is significant,” Universal Studios Home Entertainment president Craig Kornblau said.
Apple investors also saw it that way, pushing the company’s stock up 3% Thursday, while some blogs and news stories said it signaled the end of DVD and possibly even Apple’s digital competition.
Not quite.
One studio exec said it isn’t likely to change much, with the digital sell-through business expected to remain small in the immediate future. Perhaps even Apple realizes this. As one insider pointed out, it wasn’t Steve Jobs making the announcement but iTunes VP Eddy Cue.
Instead, the deal could signal a growing level of comfort by major studios that digital won’t cut into all-important DVD sales.
Lionsgate’s Beeks said they’ve found different consumers buy downloads than buy DVDs. There’s also some evidence that download sales are helping DVD sales.
“We’ve found when we give consumers access, they consume, they buy,” he said.
Warner, which has the most aggressive digital release policies, said it hasn’t seen any cannibalization of DVD sales.
Not only does the studio now offer all new releases for sale day-and-date on the major download services, the company also has aggressively moved to make VOD and rental downloads available with their DVD release.
Time Warner CEO Jeff Bewkes announced yesterday in a company earnings call that “essentially” all releases would get a simultaneous release on DVD and VOD.
Gewecke said the company will continue to decide on a title-by-title basis which films get a day-and-date release. Warner films will be available simultaneously through cable VOD, satellite on-demand, via digital download services and even on cell phones through Sprint’s mobile movie service.
“Our strategy is focused on trying to listen to our customers, trying to understand what they want to do,” Gewecke said.
Other major studios, however, aren’t yet ready to close the DVD to VOD window.
Lionsgate’s Beeks said it is still too early to say whether day-and-date VOD harms DVD. Universal on the other hand is holding the window and will continue to release films on VOD and rental download 29 to 44 days after they debut on disc.
Like Warner, Image would like to put its movies out day-and-date on VOD but is still working to sync up its offerings with VOD service corporate infrastructure.
“We share the same attitude to day-and-date that Warner does,” said Wilson.
Paul Sweeting and Susanne Ault contributed
