Can Apple succeed in the online-movie-rental business like it did with the iTunes Music Store?

 

THE FACTS

 

Apple has injected digital growth hormone into its entertainment product line. One product (iTunes) was already thriving, but an awesome new feature—movie rentals—makes this strong service even stronger. The other product (Apple TV) seemed to be on life support. But in a move that’s counterintuitive to everything we know about life support from TV and movies, Apple has cut the lifeline between Apple TV and its computer hosts, and in doing so has given the ailing set-top box a fighting chance for survival.

 

Let’s first examine the second coming of Apple TV. The device no longer requires a computer connection for content downloads and general operation. The new version connects directly to the Internet over your home network (via Ethernet or Wi-Fi), and you can browse your way through content directly on your TV. In addition to movie rentals, a new user interface provides easy access to podcasts, YouTube videos, and Flickr and .Mac photos—again, no computer connection is required for this decidedly Web 2.0-ish material. Apple TV also costs $70 less than before, at $229 for the 40GB version and $329 for the 160GB version.

 

None of this would matter jack-diddly, of course, if not for the new iTunes movie rental scheme. The iTunes Store has been a depository for movies since September 2006, but you always had to buy them, and at prices ranging from $9.99 to $14.99, you might well have resigned yourself to purchasing shrink-wrapped DVDs instead, what with their superior picture quality and extra content. But now iTunes movie rentals change everything, giving film fanatics a compelling reason to ditch Netflix (both the hard copy and Windows-only download options), cable and satellite pay-per-view movies, and all the other newfangled services that deliver movies directly from some remote server to a screen in your home.

 

If you’re renting iTunes movies from your Mac or PC, you’ll pay $2.99 for older titles, and $3.99 for new releases. These 640-by-480-pixel “near DVD-quality” flicks will be shackled by DRM, but can be transferred from your computer to an iPod, iPhone, or Apple TV. If you’re renting movies directly from the Apple TV for playback on your widescreen TV, you’ll pay those same prices for what Apple is calling standard-definition, 720-by-480-pixel, “DVD-quality” movies. High-definition, 1280-by-720-pixel (720p) titles with Dolby Digital 5.1 surround sound will only be available via Apple TV, and will cost $4.99 for new releases and $3.99 for back-catalog pap. Apple TV rentals cannot be played back on other devices, and all the movies you rent, on either your computer or through the Apple TV, have just a 30-day lifespan before disappearing (and once you begin watching a flick, you have 24 hours to enjoy it ad nauseam before it goes poof).

 

We are uninspired by the design of the Apple TV chassis. Please, Apple, give us a widescreen HD television with Apple TV built right in.

 

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HISTORY’S JUDGMENT

 

It seems that if you’re not offering a downloadable movie service, then you just don’t care about the feelings and sensibilities of the pop culture politic. Netflix, Amazon, TiVo, Microsoft, Comcast, and DirectTV all offer digital movie rentals in one form or another. And now Apple joins the fray, if not a bit late. Is tardiness deadly? History tells us it’s not. The world was rife with portable digital audio players before October 2001, but then Apple released the iPod and gobbled up the music player market in short order. (Pay attention to that iPod reference, because we’ll be returning to it later.)

 

The iTunes/Apple TV scheme will be massively appealing to existing Mac users, as well as anyone who recoils from regular TV content (broadcast, cable, or otherwise) and the idea of paying for a regular monthly service. Netflix downloads currently require a PC connection, whereas iTunes works on both PCs and Macs, and of course the Apple TV requires no computer whatsoever.
Granted, Netflix is working on a set-top box with LG Electronics, but while the device is slated for the second quarter of this year, it’s not here yet. What’s more, any box that Netflix creates is unlikely to proffer up the modern geek-culture content (viral videos, podcasts, and photo libraries) that stokes the bellies of Mac fanatics.

 

Amazon? Its computer downloads are also only for Windows PCs. You can access Amazon Unbox through a TiVo, but this DVR, once so revered, is becoming increasingly less relevant as cable and satellite providers are integrating DVR features into their decoder boxes. As TV watchers make the switch to HD displays, they’re faced with the decision to ditch the old TiVo and buy an expensive new HD version, or simply get the DVR-enabled HD decoder box that their cable or satellite service provides for “free.”

 

Indeed, the pay-per-view movie services of the cable and satellite providers may be the biggest threats to the long-term success of iTunes/Apple TV. Now, it’s true that many people have no interest in cable or satellite service, precisely because they “don’t watch TV” and reject the idea of paying exorbitant monthly fees for anything. These are the people who will embrace Apple’s new movie products, and there might be enough of them to buoy iTunes/Apple TV to prosperity. However, one should never discount the legions of weary, easily defeated subscribers to which the cable and satellite providers lay claim. Millions and millions of households are addicted to HBO, Showtime, pro sports, niche network programming, and all the other mass-market offerings we define as “TV.” No one actually likes his or her cable or satellite provider, but these companies are ramping up their video-on-demand offerings, and if they ever get their acts together, the sheer ubiquity of TV decoder boxes in American living rooms will overwhelm Apple’s efforts to cement itself in the movie rental space.

 

The Apple TV’s hardware remains unchanged. Ports, left to right: power, USB (for diagnostics only), Ethernet, HDMI, component video, analog audio, and optical audio.

 

That said, the cable and satellite folks aren’t there yet. Their movie libraries are small. And if their track record in satisfying consumer tastes and wishes is to be factored in—ahem, we still can’t pick and choose our cable channels à la carte—then Apple need not worry about the Comcasts and DirectTVs of the world anytime soon.

 

Apple says it will have 1,000 movies available for download by the end of February; for this they can thank the support of every major movie studio. This number dwarfs the current offerings from the cable and satellite concerns, but still falls short of the 6,000 (and growing) movies in the Netflix catalog. A year from now, we think you’ll see Netflix and Apple engaged in heated competition that benefits us all, and a Holiday 2008 hardware battle—Apple TV versus the Netflix box—could well decide a victor. Throughout the year, iTunes movie rentals and Apple TV sales will not be so astounding as to reinvent Apple as a movie delivery megaplayer, but history will judge the new iTunes/Apple scheme as a savvy step in the right direction.

 

That said, if Apple would just manufacture a stunning, big-screen HD television—something like the system we prototyped in May 2007, with the Apple TV built right in—the sheer hardware splendor of the device might slingshot iTunes into a position of movie rental market dominance. This HD set would do for TV and movie watching what the iPod did for music listening: It would touch the emotional buttons of mass-market consumers. It would capture imaginations, and become the “it” toy for anyone who wants the newest, coolest consumer electronics.

 

The Apple TV is no iPod, but that doesn’t mean Apple is done with the hardware side of the movie equation yet.