Apple's iTunes rental service believed 10% the size of Netflix

Posted:
in iPod + iTunes + AppleTV edited January 2014
Though it is half as old as Netflix, Apple's iTunes rental service is believed to be about one-tenth the size of the competing rental service, one analyst has projected.



Analyst Brian Marshall with Gleacher & Company said Wednesday he believes Apple sells about 475,000 rentals daily through iTunes, compared to the 5.1 million daily rentals seen by Netflix. iTunes TV and movie sales began in 2005, while Netflix first launched in 1999.



Marshall estimates that the iTunes rental business for TV shows and movies is larger than sales of purchases. He estimates that rentals generate more than $60 million in revenue per quarter, while purchases account for about $50 million. For comparison, Netflix reported revenue of about $550 million Sept. 2010.



Last week, Apple revealed that its streaming-centric $99 Apple TV had already sold 1 million units in its first three months of availability. It also said that iTunes users are renting and purchasing over 400,000 TV episodes and more than 150,000 movies per day.



Marshall believes that roughly 90 percent of iTunes TV viewings are 99-cent rentals, while 75 percent of movie viewings are rentals with an average selling price of $2.99. Applying those estimates to Apple's provided numbers results in a daily total of 475,000 rentals.







If Apple can grow its rental business at the same rate as Netflix, Marshall believes annual TV and movie rental revenue from iTunes could exceed $1 billion within 5 years. Assuming Apple keeps about 30 percent of that, it would be another $300 million per year for Apple's bottom line.



Right now, he estimates that Apple earns $110 million in revenue per quarter from rentals. About $70.7 million of that would come from movies, while $39.2 million would be TV episodes.



The new Apple TV has represented a shift for the company's iTunes business, as it pushed studios to allow 99 cent rentals of TV shows, rather than costlier permanent purchases. But some studios have been reluctant to participate, calling Apple's 99-cent model too inexpensive.
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Comments

  • Reply 1 of 47
    herbapouherbapou Posts: 2,191member
    Quote:
    Originally Posted by Solipcyst View Post


    Analysts are always wrong. Steve has already told us that the iTunes store barely breaks even. Apple operates it in order to sell hardware. It makes no money itself.



    The 30% cut on everything should be enough to return a profit. I think they do make $ out of it but its still insignificant compare to the billions in hardware profit.



    And studios need to wake up, with plenty of new ways to plug a TV into the internet, they need to come up with a business model ASAP. At least Apple is offering them a way to sell/rent there product instead leeching it for free from ad based websites or bittorrents.



    Studios wont be able to "block" all the devices like they did with Google TV. They need to work with sites like netflix that offer a package for a monthly fee and sites like itunes that offer "a la carte" renting. DVD/blueray rental stores are going down fast, studios need to get into an internet renting model.



    I think the media business model has less than 5 years of life before it completely dies.
  • Reply 2 of 47
    poochpooch Posts: 768member
    Quote:
    Originally Posted by herbapou View Post


    The 30% cut on everything should be enough to return a profit. I think they do make $ out of it but its still insignificant compare to the billions in hardware profit.



    And studios need to wake up, with plenty of new ways to plug a TV into the internet, they need to come up with a business model ASAP. At least Apple is offering them a way to sell/rent there product instead leeching it for free from ad based websites or bittorrents.



    Studios wont be able to "block" all the devices like they did with Google TV. They need to work with sites like netflix that offer a package for a monthtly fee and sites like itunes that offer "a la carte" renting. DVD/blueray rental stores are going down fast, studios need to get into an internet renting model.



    skool
  • Reply 3 of 47
    Quote:
    Originally Posted by Solipcyst View Post


    Analysts are always wrong. Steve has already told us that the iTunes store barely breaks even. Apple operates it in order to sell hardware. It makes no money itself.



    I think the article means that video rentals from the iTunes Store are $60 million per quarter, while video purchases are $50 million per quarter.



    As you say, Apple operates to sell hardware. Those 1 million Apple TV units sold in the last quarter represent almost $100 million per quarter hardware sales.
  • Reply 4 of 47
    Apple TVs streaming quality is way better than Netflix and Apple's streaming is solid not choppy. Netflix also does not have a good selection of TV shows, Apple TV has newer South Park and Family Guy episodes.



    Having said all that, I rarely rent from Apple since Netflix is considerably more affordable. Apple needs to find a way to implement a monthly membership option similar to Netflix.
  • Reply 5 of 47
    crowleycrowley Posts: 5,267member
    The claim that it barely breaks even is a few years out of date; let's not cling to that. Plus, "barely breaks even" in Apple terms may well mean it makes hundreds of millions of dollars in profit. They are a multi-billion dollar corporation.



    Also, since this report only covers revenue, not costs (and hence profit), whether it breaks even or not doesn't really enter into the equation. If another analyst wants to guess at how much the operation costs then we can combine that with these revenue guesses and come up with a profit guess.



    Why are we caring about analyst guesstimates again?





    On a different note (and as a UK resident and clueless non-Neflix user), am I right in saying that Netflix is a subscription model, with unlimited download rentals per month on some packages? Apple's model has the customer paying for every rental, so (depending on how the usage pans out) will probably be significantly more profitable per unit.
  • Reply 6 of 47
    This just doesn't add up. Netflix is available on 100x more devices and there is a lower point of entry . Just wait until Netflix starts offering newer rentals. I think Netflix is still in the testing and audience gathering phase of their service.



    I'm hooked on the $8 Netflix service. I always find something worth watching.



    Apple Store

    - Apple TV

    - iPhone

    - iPod Touch

    - Computer



    Netflix

    - Apple TV

    - iPhone

    - iPod Touch

    - PS3

    - Computer

    - Xbox 360

    - Wii

    - Roku Player

    - Netflix-enabled Blu-ray players (8+ units)

    - Netflix-enabled home theater systems (4+ units)

    - Netflix-enabled TVs (8+ units)
  • Reply 7 of 47
    [QUOTE=mitchell_pgh;1774751]



    I'm hooked on the $8 Netflix service. I always find something worth watching.



    Apple doesn't have to #1 in everything.
  • Reply 8 of 47
    Quote:
    Originally Posted by Crowley View Post


    The claim that it barely breaks even is a few years out of date; let's not cling to that. Plus, "barely breaks even" in Apple terms may well mean it makes hundreds of millions of dollars in profit. They are a multi-billion dollar corporation.



    Also, since this report only covers revenue, not costs (and hence profit), whether it breaks even or not doesn't really enter into the equation. If another analyst wants to guess at how much the operation costs then we can combine that with these revenue guesses and come up with a profit guess.



    Why are we caring about analyst guesstimates again?





    On a different note (and as a UK resident and clueless non-Neflix user), am I right in saying that Netflix is a subscription model, with unlimited download rentals per month on some packages? Apple's model has the customer paying for every rental, so (depending on how the usage pans out) will probably be significantly more profitable per unit.



    Well said. Steve's truth is always "point in time" truth! I think by now iTunes is doing a little more than just breaking even.

    And yes, Netflix is a subscription model. I'm on the $9 monthly plan, 1 dvd thru the mail and all-you-can-eat streaming to any device. We take full advantage watching entire seasons of Weeds, Tudors, etc in just a few days. Only problem is, some recent movie releases either don't make it to streaming at all or take too long to be made available.
  • Reply 9 of 47
    Quote:
    Originally Posted by mitchell_pgh View Post


    This just doesn't add up. Netflix is available on 100x more devices and there is a lower point of entry . Just wait until Netflix starts offering newer rentals. I think Netflix is still in the testing and audience gathering phase of their service.



    I'm hooked on the $8 Netflix service. I always find something worth watching.



    Apple Store

    - Apple TV

    - iPhone

    - iPod Touch

    - Computer



    Netflix

    - Apple TV

    - iPhone

    - iPod Touch

    - PS3

    - Computer

    - Xbox 360

    - Wii

    - Roku Player

    - Netflix-enabled Blu-ray players (8+ units)

    - Netflix-enabled home theater systems (4+ units)

    - Netflix-enabled TVs (8+ units)





    You forgot the iPad.



    I subscribe to NetFlix and it is very good but it does not have the global presence that iTunes has. Obtaining that global presence is not easy for NetFlix because it is really a one trick pony and global expansion is risky.



    NetFlix will soon be challenged by Sears in addition to Amazon and others. NetFlix needs to merge with a company like Apple or Google or HP. If I were CEO of NetFlix Apple would be my top choice. If NetFlix's contracts with the hosting companies and the content owners are not too crazy, then there is hope for a good merger when/if Apple opens up iTunes via the Web.



    Time will tell.
  • Reply 10 of 47
    I hope apple is able to developed the monthly fee for all you want to watch model like Netflix. But Netflix was there first and has the brand in that model. This is the same with kindle for ebooks; there first. I have the kindle app and read on my iPhone. Even though apple now offers that service, I started with kindle and am not compelled to use iBooks. I joined Netflix about 8 months ago reluctantly as I was waiting for iTunes to offer this service but it never came. Now I use Netflix over iTunes for video. Apple had to cave and put it on the apple tv.
  • Reply 11 of 47
    antkm1antkm1 Posts: 1,441member
    Let's be honest here. Apple sold 1M ATV's at V2.0 for two reasons alone: 1. Price lowered to $99, and 2. added Netflix. That's it.



    I've found that after a good 2 months of use on my ATV is that iTunes rentals are good for new releases and viewing the most recent episodes of my favorite shows; and Netflix is good for just about everything else.



    I'm not exactly sure what this means by 90% of TV viewings are 99c rentals. Since I've owned my ATV, I have yet to rent a darn thing in iTunes. If I missed an episode of TBBT or something and my DVR didn't record it, I may rent it on iTunes. Or if I have a friend over and we want to watch a movie that either not in my physical library or not in Netflix, I may rent it on iTunes. So I don't know where this guy is getting his stats from.

    Quote:
    Originally Posted by AppleInsider View Post


    Last week, Apple revealed that its streaming-centric $99 Apple TV had already sold 1 million units in its first three months of availability. It also said that iTunes users are renting and purchasing over 400,000 TV episodes and more than 150,000 movies per day.



    Marshall believes that roughly 90 percent of iTunes TV viewings are 99-cent rentals, while 75 percent of movie viewings are rentals with an average selling price of $2.99. Applying those estimates to Apple's provided numbers results in a daily total of 475,000 rentals[ View this article at AppleInsider.com ][/c]



  • Reply 12 of 47
    I don't think Apple will follow Netflix's biz model. If they do, the Studios will force Apple to wait a month to make new releases available like Netflix. The compromise Netflix has to make just to get more content is to hold off new releases a little over a month after it's released on DVD.
  • Reply 13 of 47
    ajmasajmas Posts: 541member
    A few things worth mentioning:

    - Netflix is available on many more devices (TVs, HTPCs, game consoles, etc), but is limited to North America. Some devices still only support the USA version of Netflix - Seagate I am think of you

    - iTunes movie rental is limited to Apple branded devices
  • Reply 14 of 47
    Quote:
    Originally Posted by AppleInsider View Post


    About $70.7 percent of that would come from movies, while $39.2 percent would be TV episodes.



    This sentence is absolutely appalling. Is it percent or dollars? And I think "About" probably works better when not using questionably relevant accuracy. And how can this add up to $109.9%? Am I missing something somewhere?
  • Reply 15 of 47
    thomprthompr Posts: 1,507member
    Quote:
    Originally Posted by Solipcyst View Post


    Steve has already told us that the iTunes store barely breaks even.



    That quote from Steve is almost 5 years old now. Are you sure it's still true? Volume at iTunes has grown significantly, and some of the operational costs are fixed costs (i.e. they don't scale with volume).



    Quote:
    Originally Posted by Solipcyst View Post


    Apple operates it in order to sell hardware. It makes no money itself.



    Clearly, iTunes exists to support the hardware sales. No doubt about it. Yet I think that probably over the last few years, content delivery has also become profitable for Apple. In the grand scheme of things, that profit may be miniscule compared to the hardware, but let's not call it zero.



    Thompson
  • Reply 16 of 47
    thomprthompr Posts: 1,507member
    Quote:
    Originally Posted by TimmyDax View Post


    This sentence is absolutely appalling. Is it percent or dollars? And I think "About" probably works better when not using questionably relevant accuracy. And how can this add up to $109.9%? Am I missing something somewhere?



    I think those are supposed to be percentages (not dollars), and somebody screwed up a ten's digit in one of the figures (29% as opposed to 39%, yielding 99.9% total).



    Thompson
  • Reply 17 of 47
    thomprthompr Posts: 1,507member
    Quote:
    Originally Posted by antkm1 View Post


    I'm not exactly sure what this means by 90% of TV viewings are 99c rentals. Since I've owned my ATV, I have yet to rent a darn thing in iTunes. If I missed an episode of TBBT or something and my DVR didn't record it, I may rent it on iTunes. Or if I have a friend over and we want to watch a movie that either not in my physical library or not in Netflix, I may rent it on iTunes. So I don't know where this guy is getting his stats from.



    It's possible that the stats are accurate but not everybody has the same usage patterns as you do. I know that I rent a lot of newer movies on iTunes that are not available for streaming on Netflix. Just sayin'.



    Thompson
  • Reply 18 of 47
    gqbgqb Posts: 1,934member
    I'm unclear as to the point of the article.

    Is it saying that since Apple Rental service is 1/2 as old as Netflix, that it should be 1/2 the size of Netflix as well instead of 10%, and therefore a disappointment?
  • Reply 19 of 47
    The Networks are idiots. You'd think the originators of Freemium pricing and Ad-Supported Video content would be less attached to charging money per use than the Music Labels and Movie Studios, but apparently you'd be wrong. The winner of this set-top box rentals war is going to be the company tat first gets unlimited TV Shows for a flat monthly fee to their box. It's a much easier sell to say "$15 a month, watch all the TV you want, whenever you want" than "Pay us a buck, you have 30 days to start watching or poof, it's gone. And once you start, that goes down to 48 hours."



    People don't like paying a tangible fee to watch a TV Show once, and they never will. Heck, people barely like paying a tangible fee to rent a damn movie, that's why NetFlix and LOVEFiLM are so popular, they're flat rates. The only reason these kinds of pay-per-view prices fly at all is because of the movie theatres, and to be honest the only reason they can still justify the price per use is the premium experience.
  • Reply 20 of 47
    AppleInsider should try to do the yeoman's work of actually calling into question the very questionable claims of Apple analysts. Don't be a mouthpiece for every half-assed, biased and poorly sourced piece of "research" that gets flushed out AI... I like fiction as much as the next guy, but come on now.
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