Piper Jaffray analyst Gene Munster on Tuesday said that recent meetings with four of the six major film studios revealed that they likely wonit be adding their movies to iTunes before the holidays because of fear over retaliation by big retailers, as well as issues with content protection and pricing. He wrote: “Our checks lead us to believe other studios will have content on
iTunes in the next six months, but not likely before the holidays.”
So far, Disney, which encompasses Miramax, Touchstone, and other labels, is the only major studio offering movies through iTunes. The company was likewise the first to make TV content available on iTunes, when the video-enabled iPod debuted a year ago.
Regarding the fear of retaliation, which was the biggest complaint he heard, Mr. Munster explained: “Given services
such as iTunes often undercut pricing at [Wal-Mart, Target, Best
Buy, etc.], these
retailers are concerned about the impact it will have on their DVD
sales. It is possible that retailers will shift focus to other
products if DVDs become less profitable due to lower priced online
competition. Some of the studios refer to this as iretailiationi [sic]
and they are concerned that this could significantly disrupt
current business models in the DVD market.”
Content protection ran a close second; studios are concerned about films made available through iTunes becoming victims of piracy. Mr. Munster wrote: “For most studios, they are happy to see Disney serve
as a iguinea pig,i and we expect that if Disneyis content
continues to appear to be relatively safe from casual pirates,
other studios will become more comfortable with offering content
on iTunes.”
In addition, the current pricing structure for movies was “a significant hurdle,” according to the analyst. He elaborated: “Specifically, these studios want to have the
ability to price certain movies at a premium to less popular
content and are opposed to Appleis rigid pricing strategy.” Apple currently sells older films for US$9.99 each, while new movies are $12.99 during the pre-order period, as well as the first week of sales, before jumping to $14.99.
Mr. Munster concluded: “A couple of the
studios indicated that they expect to have content on iTunes within
six months, but it may require some tweaks to Appleis pricing
guidelines to get them there. We would not expect additional studios
to sign on with iTunes before the holidays, however, as most studios
recognize that this change could disrupt their holiday business at
retailers.”
He retained his “Outperform” rating on Appleis stock, with a $99 12-month price target. At 3:25 PM EST on Tuesday, the companyis shares were selling for $73.52, down 1.49% for the day.
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