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How Big Is Apple's Video Business?

Posted by: Arik Hesseldahl on November 30

The big question in digital media these days is whether or not Apple can do to TV and movies what it did to music. It’s pretty clear that the battle is won on the music front. ITunes is where its at, and CD sales are in such a slump that I’m actually having trouble finding a reliable place to buy music CDs here in Manhattan.

But will it tie up the game so readily when it comes to video? A new report from Forrester Research that just landed in my in box suggests that the signs so far say no. Now let’s remember that Apple has been pretty successful so far: As of its latest publicly disclosed count, it’s sold 100 million TV shows and 2 million movies. Pretty good right? Well read on…..

Remember if you will that Steve Jobs disclosed that most of the music content loaded onto iPods doesn’t come from the iTunes store. Most of its comes either from existing CD collections and/or file-sharing sites. I seem to remember the average number of songs sold on iTunes per iPod is something between 20 and 30.

Forrester analyst James McQuivey points out that the average iTunes spend per user works out to about $76. He gets that by estimating that 86% of people who use iTunes, actually buy something from the store. This same set is pretty big: About 19% of adults who use the Internet. That’s a respectable slice of the universe….

But here’s the bad news for Apple: Only 19% of those people using iTunes are buying video. And while this is a group that spends almost twice as much on iTunes – about $123 on average – McQuivey reckons that of that, they spent only $30 on video. The bottom line on video sales? $100 million in the first half of the year.

Overall its an interesting look a the video picture. One thing I think McQuivey’s missing: The potential impact of the increase in video-playing devices. Until the second half of this year, there was only one iPod that could play video, the mainstream iPod. Now we have the iPod classic, the iPod nano, the iPod Touch, and the iPhone. That’s going to affect the overall appeal of video, and can’t help but push the average video spend per iPod owner northward. (Then there's AppleTV, which I think is likely to have only a minimal impact unless there's a sudden groundswell of sales that I haven't heard about yet; McQuivey figures Apple's sold 400,000 of those.) In either event I’d be very interested to see him revisit his video model in March or April of next year.

There’s an excerpt of the report here.

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Reader Comments

marcos

November 30, 2007 10:37 PM

That was a nothing kind of article. Clearly the device will drive the sales. Thanks for reminding us to revisit this next Spring. whoopdedoo

Jim C

December 1, 2007 01:49 AM

I spent many hours a few weeks ago taking DVDs I had recorded off a Tivo box and, with Handbrake, ripping them into MP4 so I could watch movies on my iPhone during my cross-country trip to and from California. Time-consuming and a bit of a hassle.

If I could have rented movies from iTunes and synched them to my iPhone, I would have certainly gone that route.

When iTunes offers movie rentals, the floodgates will open, and iTV sales will take off.

lrd

December 1, 2007 11:54 AM

At least Apple's in the running in this very critical area.

If you look at their box competition like Dell, HP & Gateway- they're not even in the radar. So what this mean?

Well it means that HP, Dell & Gateway can't stop shrinking their workforce forever in order to make it look like they're being profitable in selling boxes/PCs. And this means that all three will start shrink and lose customer focus in the box market. And what does this mean?

Well it means that Apple, because it will see revenues from iPODs, iPhones etc., will be able to aggressively launch campaigns to undermine at the least the consumer side of all three of its main competitors.

I predict that Apple will become the #1 computer seller in the US in the next three years- fueled by strong iPhone revenue as well as iPOD/iTunes revenues.

aj

December 1, 2007 03:40 PM

I think its pretty obvious where apple is going with video. now that he's had a chance to play around with appleTV, Jobs will announce a sleek, slim 42" lcd with built-in wi-fi, OSX, and a 120 gig hard drive. Now that's appleTV!

J

December 1, 2007 04:09 PM

I predict that Apple will fail in the video space, unless they start renting. Here's why:
- The cost of movies from iTunes is too high for their value. Their competition are DVDs, which offer far more value: higher resolution, *subtitles*, and the ability to share with friends.
- I can share DVDs, thus borrowing other DVDs in return for the investment of the cost of one. This is not possible with Apple's downloads. So in reality, the cost of an Apple download is much higher than the cost of a DVD.
- I can resell a DVD. I can't resell any of the movies I downloaded from iTunes, and I don't like any of mine enough to watch again. I can say that I will never again download another from iTunes.
- Convenience was the reason I downloaded from iTunes. That advantage is disappearing. Now I can walk down the street and rent a DVD for $1 from a RedBox kiosk. If I really like the movie, then I can rent it 10 times before it costs the same as an iTunes download.

The reason iTunes does so well for music is because it is a better value! You can buy a track for $1, while the alternative is $15 for a CD. Apple doesn't have a similar advantage for movies. It won't help Apple that more people buy video-capable devices. Most people want to watch movies on large TVs/projectors, and the higher-quality DVDs are better for that.

Josh

December 1, 2007 04:11 PM

Your comment submission is broken. It just displays an error message saying that it can't find some element or something.

danieleran

December 1, 2007 07:29 PM

Forrester Research released a report last year that echoed the same flawed ideas. Unsurprisingly, it was also written by McQuivey. He announced that iTunes paid downloads were dead and drying up and the the future of TV was ad supported streams that forced users to sit through commercials.

Instead, we know Apple sells the majority of music, 91% of TV, and around 60% of online movies, despite the fact that it hasn't yet started renting films nor has it introduced HD. Apple is in a clear lead in media downloads, the there is no runner up competing in both video and music downloads.

Microsoft and Adobe (who McQuivey bet on last year as ushering in a world of embedded commercials that consumers would "applaud") don't even figure among the top four online media sellers who distribute 97% of the content users buy.

McQuivey's statistics are made up guesswork. We already know Apple is leading media downloads, including video because we have actual sales data. We also know that Forrester Research is not paid by Apple to make up its headline generating reports. That makes it easy to draw conclusions about the value of McQuivey's research.

roughlydrafted.com

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A blog on the daily doings of Apple and the many companies in its orbit, with insight and analysis by two longtime Apple-watchers BusinessWeek Senior Writer Peter Burrows and BusinessWeek.com Senior Technology Writer Arik Hesseldahl.

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