By Ben Fritz and Tripp Mickle
Apple Inc.'s iTunes Store -- already struggling against rising
competition for music listeners -- is losing the battle for video
viewers as well.
The company's market share for renting and selling movies has
been falling for several years, tumbling to between 20% and 35%
from well over 50% as recently as 2012, according to people with
knowledge of the matter.
No third parties track market share in the digital-movie
business, making exact figures impossible to obtain. Different
Hollywood studios do different amounts of business with Apple, but
several of them report a marked decline in iTunes' leadership
position.
An Apple spokeswoman, who didn't dispute the market-share
estimates, said Apple is focused on providing customers with video
content across subscription services such as Netflix and HBO, as
well as iTunes, where she said movie purchases and rentals have
increased over the past year and hit their highest level in more
than a decade.
Apple's growth appears to be a consequence of overall industry
increases, despite its market-share losses. Last year, total U.S.
digital-movie sales and rentals rose a combined 12% to $5.3 billion
in the U.S., according to PricewaterhouseCoopers.
Apple's challenges in video come as the company looks to double
by 2020 its $24 billion services business, which includes App Store
sales, Apple Pay and Apple Music. iTunes, where Apple sells and
rents films, has served as the foundation of that services business
since 2003 when it made its debut as a digital store for music
downloads before expanding to include TV shows and movies.
Services, the company's second-largest business, have taken on
increasing importance as Apple seeks to reduce its dependency on
the iPhone, which accounts for two-thirds of annual sales.
iTunes video, music, book and magazine sales last year accounted
for an estimated $4.1 billion in revenue, making it the
second-largest services business behind App Store sales, which were
nearly twice as large, according to estimates by Bernstein
Research.
Apple's iTunes has faced a host of rising competitors in recent
years in the market for renting and buying new movies online, which
typically cost about $6 and $15 each, respectively.
One that has had a big impact is Amazon.com Inc., which in
addition to its Prime subscription service rents and sells movies
on a "transactional" basis. Its market share in that business has
recently risen to around 20%, studio executives who are involved in
home-entertainment sales say, as it has been highlighting its
entertainment offerings.
Another is Comcast Corp., the nation's largest cable provider by
subscribers, which has long rented movies on its set-top boxes and
in late 2013 began selling digital copies as well. It now has about
15% of the combined market, according to people involved in digital
movie sales.
"Comcast and Amazon have been quite aggressive of late and taken
quite a lot of the business," said Dennis Maguire, a former
president of home entertainment for Viacom Inc.'s Paramount
Pictures.
In addition to steeper competition, Apple faces broader changes
in the movie rental and sales market as consumers increasingly
watch movies and TV shows offered through streaming-subscription
services from Amazon, Netflix Inc. and others. Their popularity is
a big reason why video-on-demand movie rental revenue in the U.S.
declined 4% to $1.8 billion last year, the first year it has
dropped in recent memory, according to PricewaterhouseCoopers.
Digital movie purchase revenue grew 21% to $3.5 billion, compared
with a 29% increase the prior year.
"That's a challenge for the whole industry," said Bruce
Leichtman, president of Leichtman Research Group, which analyzes
the media industry.
Apple's market share declines are independent from the broader
slowdown in the business, but both affect the company.
The transition mirrors what happened to iTunes' music business
after Spotify AB began offering a subscription service in 2011.
Just as Apple responded by launching a $10 music-streaming service
in 2015, it is moving to beef up its video offerings in a
subscription service. To help make such a service more appealing,
Apple recently hired the former chiefs of television for Sony
Pictures Entertainment to spearhead a move into original video and
has released its first program, "Planet of the Apps," which is
available along with some other video content to Apple Music
subscribers.
The company also has tried to capitalize on the broader shift to
subscription streaming services by selling subscriptions to
Netflix, HBO and others through its app stores, including an Apple
TV app store and operating system introduced in 2015. It takes a
15% cut of the subscriptions it sells. The Apple TV app store
offers more than 1,300 video channels and 6,000 video, gaming and
other apps, which Apple calls the future of TV.
Apple's iTunes struggles come following years of steady growth
in the business. After launching iTunes movies in 2006, the company
quickly took a dominant position in movie sales and rentals largely
because of the success it was already enjoying in digital music
sales. No other competitors had as sophisticated an online store or
a suite of devices to play its content, like the iPod and Mac.
Netflix was still relying on the U.S. Postal Service to mail DVDs
to subscribers and entertainment was a tiny business for
Amazon.
In the decade since iTunes launched movies, other companies
offering transactional video-on-demand and movie purchases, in
which consumers pay for each piece of content (as opposed to
all-you-can-eat subscriptions), have increased the quality of their
offerings. Comcast has invested heavily in its X1 set-top box that
offers the ability to search on-demand content by voice and Amazon
has beefed up its entertainment business.
Apple's loss of market share in the digital movie business isn't
uniform across genres, people who work with the company say. It has
promoted independent films and signed deals for exclusive rights to
some produced outside the major studio system, making it a stronger
competitor in that space.
Write to Ben Fritz at ben.fritz@wsj.com and Tripp Mickle at
Tripp.Mickle@wsj.com
(END) Dow Jones Newswires
July 09, 2017 17:06 ET (21:06 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
Amazon.com (NASDAQ:AMZN)
Historical Stock Chart
From Apr 2024 to May 2024
Amazon.com (NASDAQ:AMZN)
Historical Stock Chart
From May 2023 to May 2024