Apple Inc.’s (NASDAQ:AAPL) Services division is increasingly important to its bottom line. But one of the pillars of that division — iTunes video rentals and purchases — is struggling. At a time when overall industry revenue from digital movies is on the rise, it appears that Apple iTunes is rapidly losing market share.
Between competing services and the increasing popularity of streaming video from companies like Netflix, Inc. (NASDAQ:NFLX), Apple’s piece of the pie has been steadily eroding.
Report: iTunes Video Falls Short
The Wall Street Journal published the report claiming that Apple’s iTunes is struggling to keep up with new and stalwart competitors in both music and video.
While the WSJ notes that there is no official third-party tracking of digital movie business market share, it cites people with knowledge of that matter — including Hollywood studios — in claiming that Apple’s iTunes video sales and rentals have lost their industry leadership position.
In 2012, that was estimated to be over 50% of the digital movie sales and rental business. Today, the number is pegged at between 20% and 35% of the overall market.
An Apple spokesperson did not dispute the market share estimates, but claimed iTunes movie sales and rentals “have increased over the past year and hit their highest level in more than a decade.”
That statement may seem to contradict the WSJ’s sources, but there is much unsaid in Apple’s statement — specifically, actual numbers. According to the report, revenue for digital movie purchases grew 21% last year and 29% in 2015. Those sort of numbers give plenty of room for iTunes movie sales to have increased, as claimed by Apple, while still sliding significantly in overall market share.
Bruising Competition
Competition is fingered as being the primary culprit for the Apple iTunes decline. That takes the form of both increased offerings for digital movie sales and rentals, and also the rise of subscription streaming services like Netflix.
The WSJ pegs Amazon.com, Inc.’s (NASDAQ:AMZN) Amazon Prime share of digital movie purchases and rentals at 20% of the market. It also points to Comcast Corporation (NASDAQ:CMCSA), which has aggressively chased the digital rental and purchase business using its set-top boxes and now has an estimated 15% share of that market.
Apple TV Isn’t Helping
The Wall Street Journal didn’t really get into this aspect of the equation, but the problems with Apple TV can’t be helping the iTunes video situation.
Many of the video purchases and rentals from Apple iTunes are initiated by Apple TV owners. In 2012 — when Apple stock holders could brag about a 50% share of the streaming movie market — its Apple TV also held a greater than 50% share of the set-top streaming box market.
Today, the Apple TV is struggling. It’s been hobbled by a series of issues, including several years of neglect by Apple, lack of 4K support, a very high price point and increased competition. Apple’s TV market share has steadily dropped since 2012 and now stands below 12%.
It’s probably not a coincidence that with Apple TV market share in free fall since 2012, iTunes video sales and rental market share has also been in steep decline.
Is There a Solution?
Apple stock has been in this spot before. Apple iTunes was the place to buy digital music before subscription streaming services began to gut that market. The company responded with Apple Music, quickly becoming one of the biggest players in streaming music.
The company is moving toward building streaming video into its iTunes business. It hasn’t happened yet — other than offering original video programming like “Planet of the Apps” to Apple Music subscribers — but the company has been moving pieces into place to eventually offer an iTunes video streaming service of some sort.
In the meantime, it’s pushing subscriptions to those other streaming services like Netflix through its App Store, and at least taking a 15% subscription cut from those.
One “quick” fix to helping slow the decline of iTunes movie sales market share, while providing a friendly platform for launching an eventual iTunes video streaming service, would be a new Apple TV set-top streamer. One that supports 4K and doesn’t cost twice as much (or more) than the competition.
Boost that market share back up, and there’s a good chance the video revenue will follow for Apple stock.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
