Commentary

Apple Rules Online Movie Sales and Rentals, But Wal-Mart Makes a Move

Itune-Movie-rental

Tablets and music players aren't the only markets Apple is dominating in the digital world. According to the latest market analysis of movie electronic sell-through (EST) and Internet video on demand (iVOD) services, IHS Screen Digest says that Apple iTunes is effectively fighting off competitors. The owner operator of the iTunes multimedia store saw its share of the market rise to 65.8% in the first half of 2011, up from 64.9% for the same period last year. IHS notes that Apple experienceD a dip in share last year as rivals like Amazon and Wal-Mart's Vudu service joined the Xbox-driven Microsoft Zune and PS3 Playstation Store in an increasingly crowded market. In the first half of 2010, by contrast, Apple saw its share of the digital video sales and rental market drop 11.9 points.

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Screen Digest analysts attribute the rebound to the AirPlay functionality that iPhone/iPod Touch and iPad devices now enjoy. Users can stream their media across the network to the TV via the Apple TV box now. While we guess AirPlay has something to do with the increase in Apple's share, the new feature is of course linked to a major Apple TV 2.0 hardware and business model upgrade, the arrival of the Retina display on iPhone 4 and the iPad itself - all themselves no doubt major drivers in the consumption of iTunes movies, whether through AirPlay or not.

Microsoft's Xbox remains the second most important living room device for the movie market, with a 16.2% share, down from 18.5 last year.  The Xbox enjoyed a bump last year with the release of the motion controller Kinect, which not only enhanced the experience of interacting with the game console but reminded people it was still in their living room. This is no small thing as game machines move farther into their lifecycles. We are now late in the Xbox 360/Wii/PS3 generation of boxes, when gamer interest often wanders. For instance, Sony's Playstation Store saw its share of the movie sales and rental market decline from 8.2% to 4.4% between the first half of 2010 and the same period this year.

The key beneficiary of these shifts appears to be Wal-Mart-owned Vudu, which is ingratiating itself to users with the clarity of its interface, good distribution across blu-ray players and connected TVs and low prices. Vudu saw its market share balloon from 1% to 5.3%.

The head-scratcher in all of this is Amazon, which despite the roll-out of new services is still only getting 4.3% of the market. Personally, I find Amazon's rental integration on things like Google TV and Roku very good. Of course, the company has not been aggressive in its distribution strategy. Worse, its instant viewing option for Prime members competes with its own sales/rental and channel.   

Vudu's fast rise into being the third most popular movie service online is deserved and perhaps a portent of things to come. Unlike Apple, the service offers pricing flexibility that reflects SD to HD sets. It also has a strong merchandising sense, with a lot of price breaks as well as timely programmed sections. You think anything with the Wal-Mart imprimatur on it must be about cheap and trashy? Think again. With a section of Criterion Collection films and retrospectives on the work of Terence Malick there are some real brains behind Vudu. Look for a next stage of competition among some of these principals on the grounds of pricing and programming. 
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