• The Business of Online Video, Friday, March 20, 2009 11:45 AM

Apple on Thursday announced that it would start selling HD quality movies through its iTunes media store, but Dan Rayburn of The Business of Online Video says the business model is fundamentally flawed, as the HD downloads will cost $20-$3 more than the average DVD on Amazon. "This is just stupid," Rayburn argues, "how on earth can the studios continue to charge more for a digital download than a physical DVD?"

Digital downloads cost far less to produce and distribute than DVDs, which have manufacturing and packaging costs. Meanwhile, the bandwidth cost to download a two-hour movie is mere pennies, Rayburn says, and the online promotion of digital content is also a lot less expensive than other forms of marketing. "Yet even with all those savings, the studios charge more for digital downloads."

This is obviously a studio and not an iTunes issue, he notes, because services like CinemaNow also charge $3-$5 more for digital downloads. "How can this be the future business model for the online consumption of entertainment?" Rayburn asks. "Part of me really wants to see all the studios fail just so they learn their lesson."

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