Apple Losing Money on New Movie Sales?

[MacRumors]

The Wall Street Journal claims that Apple is actually losing money with each new-release movie sold on iTunes. Apple announced yesterday that they would now be offering many movies for sale on iTunes on the same day as their DVD release.

These new movies cost $14.99, but according to "a person familiar with the matter", Apple is actually paying the studios close to $16 per sale for these new releases. While this price may be less than what the studio might charge for traditional retail sales, the actual profit margin on the digital distribution is much larger.

This approach is consistent with Apple's insistence that the iTunes Store has always intended to run at just above break-even in order to drive hardware sales.

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[k2spitfire88]

I like their approach, but is that smart financially?

[Brianstorm91]

Ignore comment number 2, your Jobness

We all like, end of.

[askthedust]

see title...

[Genghis Khan]

i believe it is

1) apple has many economists smarter than any of us on the matter

2) so long as the store runs just above break even, it's fine..only adds to the service provided by apple

[aristobrat]

It's also somewhat of a humble-pie thing for Apple to do in light of their apparent negative image with the big media companies, no?

[arn]

This makes sense. It's clear movies have not taken off as well as Apple hoped. they want to drive movie sales on iTunes, and they had to pay a higher price for it. lose a small amount of money on movie sales to build marketshare.

arn

[k2spitfire88]

Originally Posted by k2spitfire88

I like their approach, but is that smart financially?

Originally Posted by Brianstorm91

Ignore comment number 2, your Jobness

We all like, end of.

I agree, but shouldn't it be above break even, instead of losing money? (even just above). However, if they are using to try to make more people go with a mac/hardware(iPod) sales, and they regroup it (and more) there, than it makes sense.

Edit: arn's reasoning makes a lot of sense too...

[Dr. Dastardly]

I think they are looking more at this as an investment opportunity rather than turning a profit (breaking even). They want to get as many releases and have them available for distribution as soon as they are available on dvd. The traditional movie theaters days are numbered, soon to be replaced by digital distribution. Apple is trying to get as large a foot hold in that as possible and making the lost revenue up by selling Apple TVs and iProducts.

[Stampyhead]

Man, now I feel like I'm screwing Apple out of $1.01 every time I purchase a movie from iTS! I'm sorry Apple!

[PlaceofDis]

this makes sense from a strategic point of view, this will help them build more marketshare and help them sell more apple tvs as well

[bigmc6000]

Originally Posted by k2spitfire88

I agree, but shouldn't it be above break even, instead of losing money? (even just above). However, if they are using to try to make more people go with a mac/hardware(iPod) sales, and they regroup it (and more) there, than it makes sense.

Edit: arn's reasoning makes a lot of sense too...

I think what they are saying is as long as the iTunes store as a whole makes a little bit of money then that's fine. By as a whole I mean literally everything that connects to iTunes. There's no doubt in my mind they are losing money with free podcasts - I mean they pay to have the server space and they don't charge for them so they have to cost money.

This also helps Apple in the image department when they go to bat against, oh, idk, NBC when NBC is b!tching about how Apple is setting the price and making the average Jo-Schmo assume that, just like every other company, Apple is upping the price to make a profit when in fact they make very little if anything. Kinda gives that "we're fighting for you" argument, much like a politician...

Anyway, as long as Apple runs above costs on iTunes as a whole I think it's fine...

[Grimace]

Micro$oft *just* made the first XBOX profit this year. All the previous years were losing years for that division because they needed to build market/mindshare.

I think every console lost $200. The games (and long term customers who buy them) are the big prizes.

[riesvantwisk]

Originally Posted by k2spitfire88

I like their approach, but is that smart financially?

Pure financially not ofcource, but you need to see this as an strategy/business decision rather then a money maker.

It's much like a cafe shop offering the second cup for free, yes it costs money but it drives more people coming in.

Ries

[hiptobesquare]

But what is to say that this dollar per sale loss isn't offset by other profits from other parts of the ITMS?

Music, TV episodes, Movie rentals, and other content.

Plus, once the distribution channel is developed, Apple can re-negotiate their costs from a stronger position.

It does seem a little ludicrous that a distribution channel with very little material and absolutely no packaging or store shelf requirements should cost $16 dollars per unit. That seems quite high, especially in light of how inexpensive music and television media sells digital-only for.

Now if Apple can just build me a computer that I can use for my HD-quality media center, I would start considering purchasing or renting more online movies.

I am not going to add an Apple TV as one more box on my stereo rack. I want a Mac that will replace most of the "boxes" on my stereo rack. Mac Mini is just short of that task, iMac isn't well suited for it unless you want a small media monitor, (even 24", being big for a computer, is small for a TV across the room) or a complete-overkill, monsterous, expensive Mac Pro.

[Soundhound]

I got an Apple TV as a gift, wouldn't have bought one myself. Youtube on TV is actually genius, I love it. Being able to rent or buy movies is great, but the library is Waaaaaaaayyy to small - there's no reason to think of it as a resource yet. But... If they ever get 50,000 or however many titles netflix has, Apple will rule the world: want to watch a movie, any movie you can think of. Press a button, watch movie. it will be huge.

[Eraserhead]

I doubt this is true. They may break even, but I don't think Steve would want to sacrifice his precious margins. I can see them being charged $14 for each movie or something, so they are making virtually nothing however.

[PlaceofDis]

Originally Posted by Soundhound

But... If they ever get 50,000 or however many titles netflix has, Apple will rule the world: want to watch a movie, any movie you can think of. Press a button, watch movie. it will be huge.

this is the goal i'd believe, yes. get the apple tv up there in terms of "must have" like the ipod. but who knows if it'll work. the problem is that they'll need to embrace hi def, and soon, so people have an alternative means of acquiring a hi def movie library, and then you'll be able to lock people in sooner and easire i'd think.

[Object-X]

I would pay $20 if they were 720p HD.

[xUKHCx]

Originally Posted by Eraserhead

I doubt this is true. They may break even, but I don't think Steve would want to sacrifice his precious margins. I can see them being charged $14 for each movie or something, so they are making virtually nothing however.

Movies are not a large part of the iTMS business at the moment so any loss on a sale there will most probably be recouped over the music sales side of the business even if they had a very tiny margin there.

I think it is a good move as it will help them get a foot hold in the market which will given the benefits such as increase hardware sales and in future a better position to bargain and as such can swing the margins in there favour.

[mdntcallr]

i prefer hd ppv / vod method. even if i have to wait 1 month after the release on homevideo

any movies i'd like to spend that much on. i'd rather get on Blu-Ray

[Eraserhead]

Originally Posted by xUKHCx

Movies are not a large part of the iTMS business at the moment so any loss on a sale there will most probably be recouped over the music sales side of the business even if they had a very tiny margin there.

I think it is a good move as it will help them get a foot hold in the market which will given the benefits such as increase hardware sales and in future a better position to bargain and as such can swing the margins in there favour.

Maybe, I would expect low margins like the music had at the beginning though.

[dagamer34]

Do people actually think that gaining market share in a domain doesn't cost money? In theory, web advertising is pretty similar since immediate benefits aren't seen from X amount of money spent on ads. HOWEVER, everyone knows that NO ads = NO sales, so you do it anyway.

The most important thing Apple can do is to get people hooked onto their service. If it only cost them $1.01 per movie, then great. The scared ******** face that Wal-mart execs had when they found out about this deal is worth oh so much more...

[gkarris]

I bet it's the same when you see DVD's on sale the week of release for $12.99 (that's how much they are around here).

They get you to go to the store for the DVD and the store hopes you walk out with a new LCD HDTV or HD Camcorder....

I think they're called "Loss Leaders"?

[twoodcc]

i'm really surprised at this. it's actually hard for me to believe, but i guess it's possible.