As digital video downloads grow in popularity, music-downloading pioneer Apple (Nasdaq: AAPL) seems to have fallen behind the times. Rumors are currently flying that Apple's in serious talks with the movie studios to provide full-length films for download through its iTunes service, but it may have a tough round of dealmaking ahead.
Although news agencies are reporting on Apple's negotiations today, they're still in the realm of rumor and innuendo, with information coming from undisclosed sources. These sources apparently say that iTunes could be offering movie downloads by the end of the year, which is hardly a shock. Apple already offers music videos, movie shorts, and popular TV shows from the likes of Disney's (NYSE: DIS) ABC, CBS (NYSE: CBS), and Comedy Central, so observers have expected the addition of full-length feature films for months now.
It's not surprising that Apple might have a tough time negotiating with the movie studios. Reports indicate the studios would prefer flexibile pricing, with hot new films costing more than older releases, while Apple apparently wants to continue the flat-rate pricing of its iTunes Music Store. (Though Apple helped legitimize music downloading, music labels have long resisted CEO Steve Jobs' insistence on flat-rate pricing.) But if the movie studios take a hard line on pricing, they might end up shooting themselves in the foot.
The studios have already dipped their toes into the pool of digital movie downloads, but those efforts have failed to gain mainstream acceptance, partly because of their prohibitively high prices. At this point in the game, I think the studious would be small-f foolish not to follow Apple's lead on pricing. If consumers consider legitimate digital movie distribution too expensive, they might find other alternatives, including pirated movie downloads, more cost-effective. When I covered several of the movie studios' recent endeavors in digital downoading, I came away thinking that they were too costly to lure consumers.
Though digital video is clearly gaining momentum, a few seemingly logical players have remained remarkably quiet. We've been waiting for quite some time to see what kind of digital movie content Amazon.com (Nasdaq: AMZN) might offer, and it's likely only a matter of time before Google (Nasdaq: GOOG) starts distributing movies, too.
After several years of pronounced Apple bullishness, the Mac maker's stock has tumbled about 20% in the last six months. Many investors seem to fear that the bloom is off the rose for the ongoing iPod phenomenon; recent fears about consumers' diminished spending power probably haven't helped, either. Those worries are bolstered by the potential for greater competition, such as Amazon's rumored upcoming digital music player, and recent word that Microsoft (Nasdaq: MSFT) has its own digital music plans up its sleeve.
Is Apple falling behind the times? Many Mac fans have long expected that Apple would be offering movies for download by now. Apple used to be the first mover in digital content, and its investors may be disconcerted to wonder whether the company's coming late to the party for a change.
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Alyce Lomax
does not own shares of any of the companies mentioned.
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