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iTunes movies may actually be Apple TV loss leaders


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By Jacqui Cheng

Apple is allegedly paying more for its same-day-as-DVD iTunes movies than it charges customers for the downloads, indicating that the company views the movies as a loss leader to help sell other products. The ever-popular "person familiar with the matter" told the Wall Street Journal (subscription) that Apple pays the movie studios a wholesale price of $16 per movie while only charging customers $14.99 for new releases. The $1.01 loss on each movie sale is sure to add up, but Apple is apparently confident that such an agreement will pay off in the long run.

The information comes just after Apple announced that it had done away with its 30-day lead time between a movie's DVD release and its appearance on the iTunes Store, making all of its movies for sale online at the same time as their DVD release. This includes films from major studios as well as independents. 20th Century Fox, Walt Disney Studios, Warner Bros., Paramount Pictures, Universal Studios Home Entertainment, Sony Pictures Entertainment, Lionsgate, Image Entertainment, and First Look Studios are all on the list.

Apple may not have the widest movie selection for purchases or rentals, but the deal certainly does make the idea of using iTunes over Best Buy, Wal-Mart, or Blockbuster more appealing. That's just one reason why Apple would agree to lose money on movie purchases for the time being—the iTunes Store isn't doing badly when it comes to video downloads, but it could stand to do even better. The more people that are attracted to iTunes for their movie purchases, the more repeat customers Apple earns for not just movies, but for its other offerings such as music, TV shows, and iTunes-compatible gadgets.

Gadgets—namely the Apple TV—are the bigger reason as to why Apple might choose to sell movies as a loss leader. Now that version 2.0 of the Apple TV allows users to buy and rent content directly from the device, it's the perfect solution for people who just want to plop down on the couch (or catch a flight) and watch something that was just released today—no driving around town and dealing with parking/weather/screaming kids at Wal-Mart required. If the deal drives more customers to buy Apple TVs or other hardware in addition to more content from iTunes overall, then a $1.01 loss on each movie purchase is easily made up several times over.

The only question is how long Apple is willing to offer movies as a loss leader. If it decides it needs to at least break even on the films, the company has two options: convince the movie studios to lower their wholesale prices, or raise the prices that consumers pay. Neither seems like it would be particularly popular with their respective audiences, although the studios might be convinced in the longer-run to reduce prices if movie purchases through iTunes really take off—after all, there's less overhead in downloads than in DVDs.

Source: Ars Technica

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