Apple Inc. (NASDAQ:AAPL) has a well-established history of upsetting the status-quo. Sometimes it’s hardware, like the iPhone, which came out of nowhere to demolish industry giants like BlackBerry Ltd (NASDAQ:BBRY). Other times it’s services like the iTunes store, which re-wrote the way consumers bought their music and helped push CD sales into rapid decline. The next big game changer may well be iTunes movies that are available just weeks after theatrical release.
The prospect of a new way of watching Hollywood’s latest hasn’t yet had a big impact on AAPL stock, but a report that movie studios are working with Apple on early release digital movie rentals hammered three of the largest movie theater chains.
AAPL Negotiating for iTunes Movies Weeks After Release
Rumors first began circulating back in December that Apple was negotiating with film studios over the possibility of PVOD iTunes movies — “premium video on demand” rentals that would cost extra, but be available to download just weeks after theatrical release instead of months.
AAPL has been working the video content angle a lot in recent years, and many of the rumored talks with studios and networks haven’t amounted to anything. The company’s failure to land a deal for an online TV service for cord cutters is a good example of plenty of smoke, but no fire.
But Bloomberg reported on Friday that negotiations with movie studios for PVOD iTunes movies are progressing. And this time, the potential for an actual deal is high enough that the news clobbered the stocks of three of the biggest movie theater chains. At one point on Friday, AMC Entertainment Holdings Inc (NYSE:AMC) was down as much as 8.4% as investors pondered the possibility of Apple turning living rooms with Apple TVs into cheaper, more convenient places to watch new release movies.
PVOD iTunes Movies
Currently, AAPL gets most films as iTunes movies three months after theatrical release. That’s typically at least a few weeks before they’re available to buy as DVDs or Blu-Ray discs, but still a long time to wait for a new movie. The arrangement is no threat to movie theaters — the titles have long left the building.
The deal Apple is working on with the movie studios is for PVOD digital movie rentals. They would cost a lot — Bloomberg’s sources say in the $30 to $50 range — but they would be available as soon as two weeks after release. Under Apple’s current model, most movies initially cost about $20 to buy and digital movie rentals go for $5. The average price for a movie ticket in North America is currently $8.84, so that PVOD movie really would be priced as a premium product.
However, if a consumer chose to rent current iTunes movies instead of going to theaters, they could save a little on ticket price (for a family or group), but the big wins would be convenience and avoiding the movie theater concession costs. They could watch in the comfort of their own home with no drive, parking or line-ups and skip the expensive buckets of popcorn. That would probably be worth the premium for many people — thus the punishing of movie theater stocks.
How Likely Is This to Actually Happen?
This is the big question. Will movie studios like Time Warner Inc’s (NASDAQ:TWX) Warner Bros. actually pull the trigger and sign a deal with AAPL for PVOD iTunes movies?
There is a precedent. There are currently movies available to download from iTunes at the same time that they are playing in theaters, but the selection is very slim and the titles are not exactly blockbusters. A quick check shows five movies available at the time of this writing, including “Austin Found” and “48 Hours to Live.”
The movie studios and move theater chains are both fighting to protect revenue in an age of streaming video, declining DVD sales and consumers staying at home. The theaters have threatened to boycott showing new movies if the studios allow simultaneous streaming, so there are significant negotiations that need to occur between those two stakeholders before any deal is signed with Apple.
However, PVOD iTunes movies are a real possibility. And at $30 to $50 a pop, that could be a real boost to Apple’s Services revenue, not to mention the effect it could have on Apple TV sales. The result would be yet another status-quo being upset by Apple and yet another boost for AAPL stock.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.