Neil Hughes
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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47 Comments
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.
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
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.
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.
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.