Higher Prices On iTunes? It's About Time!

In yesterday's NBC-Universal story we concluded that a discussion of iTunes pricing model was long overdue.

Today, it appears that we were right on the money, as rumors have spread that 20th Century Fox is in negotiations with Apple to bring its content to iTunes.

One condition of the deal, however, is that Apple raise the average selling price of a movie.

Don't worry folks. This is a good thing.

And no, I don't like paying more for content any more than you do.

The problem...

But Apple's insistence on low prices have kept many studios from jumping on board.

In fact, only one major studio consistently releases new features on iTunes, and that's Disney and its satellite studios.

And Disney just happens to have Steve Jobs on its board of directors. Coincidence? I think not.

Apple has been so pressed for content that it's even turned to independents to help make up the difference, recently premiering Ed Burns' full-length motion picture Purple Violets, along with last year's Academy Awards nominated short films. It also distributed about half of the Sundance Film Festival shorts this year.

Even so, iTunes has just under 1,000 movies listed. And when one of your top-ten films is 1987's The Princess Bride, you know the pickings are just a little slim.

This reluctance to jump on the iTunes bandwagon stems from several sources.

First up is that assertion that Apple's low one-price-fits-all model reduces profits by removing Hollywood's ability to adjust prices. Translated, it means that studios want to charge more for more popular films and new releases and, they say, drop prices on older content.

They've also examined with care the "golden handcuffs" Apple currently has on the music industry, and many balk at giving Apple that same "power" over them.

Moving on, major brick and mortar retailers like Wal-Mart and Target are pressuring studios not to undercut DVD sales with digital downloads. This despite that fact that stores often lose money on new releases, treating them as loss-leaders to bring people in so they'll buy other stuff.

That said, the storefronts may be in trouble anyway.

A report from Natixis Bleichroeder analyst Alan Gould and recounted by Ars Technica indicates that current DVD sales are way below expectations. The culprits? Video-on-demand and pay-per-view, and Netflix rentals top the list, while others think that some customers are sitting on the fence due to the Blu Ray/HD DVD wars, not wanting to buy new content until they know which way the wind is blowing.

Pricing...

At any rate, the end result will be that Apple will have to pay a higher wholesale price of $15 per movie—just $3 less than the average price of a standard DVD. Apple currently charges $12.99 for pre-orders of a new release, and $14.99 retail, with many older films selling at $9.99.

Higher wholesale prices will, of course, require Apple to raise their retail prices, and the reactions of the online community at large have—to say the least—not been pretty. Many have bashed the studios for failing to understand the mechanics of the digital marketplace, and the usual suspects have focused on the decision as yet another rationale for P2P piracy.

But as I said earlier, I think this is a good thing. While I may not care for the price increase, I am in favor of anything that expands my choice and product selection.

I may not want to pay $16.95 for a digital copy of a film, but at least now I'll have the ability to do so, should I so desire.

Apple's decision to maintain a one-price-fits-all model has ultimately hurt them as much as it's helped them. While I applaud their fight to maintain low prices, that fight has actually limited the appeal of devices like the Apple TV by dramatically restricting the amount of content available for it.

I also firmly believe their "simplicity" argument is be a bit condescending. After all, most of us seem to manage our Amazon shopping carts just fine.

And as a final ingredient, let's factor in the evidence that Apple is planning to support movie rentals off iTunes.

It's a wrap...

So here's the deal. Fox and the other studios will slowly come on board, probably after being announced during the upcoming MacWorld Expo starting in January, and after the Christmas season is safely over.

Sales will be lackluster and biased towards the rentals, dropping revenues even further. Which then gives the studios a decision to make. Accept things as they are, or drop prices to grow sales. They could pull out, but with DVD sales tanking I don't see them pulling away from any significant revenue stream.

At which point we'll have more new releases and a larger selection and lower prices and support for all of our portable devices and gadgets.

Choice first. Then let market forces drive down the prices.

Which is definitely a good thing.

[via Ars Technica]

Comments

[John Jacobs]

Hey, I LIKED the Princess Bride!