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Google to take on Apple's iTunes with mainstream movie rentals on YouTube

After reportedly finalizing deals with several major movie studios, Google is set to launch on YouTube a Video on Demand movie rental service that will challenge Apple's iTunes movie store for dominance of the VOD market.

YouTube began offering movie rentals last year, but had yet to rent mainstream movies, instead offering movies mostly from independent studios. Google plans to build out the service with the imminent launch of a movies on demand service from the major Hollywood studios, The Wrap reported on Monday.

According to the report, Google has successfully negotiated deals with major studios including Sony Pictures Entertainment, Warn Brothers and Universal, though "knowledgeable executives" indicated that Paramount, Fox and possibly Walt Disney have declined to participate at this time.

Google has quietly begun adding mainstream movies to YouTube, with rentals ranging in price from $1.99 to $3.99. "We've steadily been adding more and more titles since launching movies for rent on YouTube over a year ago, and now have thousands of titles available," a YouTube spokesperson, while declining to comment on the rumored major studio launch.

“We think it will start with VOD, but broaden to include sell-through over time,” said an executive at one Hollywood studio that has signed the deal with YouTube. “We are pretty excited because we are happy to see new entrants come in transactionally rather than a subscription model.”

According to the report, movies will be made available on YouTube the same day they can be rented at video stores or iTunes, ahead of subscription services like Netflix.

“What’s really good about their approach is rather than another subscription offering, they’re going into a fresh area where there has been fewer leaps forward," said one studio executive.

Google executives appeared to hint at a YouTube VOD store earlier this month at a seminar. "Imagine if you had a video store on YouTube, where you could rent or buy the movie without being sent elsewhere," said YouTube vice president of TV and film entertainment Robert Kyncl.

However, when asked about specific details, Kyncl replied, "Obviously, there are things coming, but we can't talk about them yet."

For its part, Apple began offering iTunes movie rentals in 2008 with a major launch that included all the major movie studios. Movie rentals initially started at $2.99, with high definition versions and new releases costing more. After purchasing, customers had 30 days to start watching the rental and 24 hours to finish the movie once playback has begun.

With the launch of the second-generation Apple TV last year, Apple also began offering 99 cent TV show rentals, though Fox and ABC were the only two studios on board at launch.

At a media event to unveil the set top box, Apple CEO Steve Jobs suggested that the other studios would soon relent and begin offering TV show rentals. "We think the rest of the studios will see the light and get on board pretty fast," he said.

Research group IHS revealed earlier this year that Apple had maintained a 64.5 percent market share of the online VOD 2010, while losing some share to Sony and Microsoft. In 2009, Apple held 74.4 percent of the online movie market, which doesn't count subscription services like Hulu or Netflix.

In the recent March quarter, Apple generated a record $1.4 billion in revenue from the iTunes online store, though it's unclear what portion of that figure consisted of movie rentals.