Apple goes to the movies
The company is expected to announce a movie download service. Analysts say if Apple lets people connect iPods to their TV, the business could be a big hit.
NEW YORK (CNNMoney.com) -- Amazon.com may have beaten Apple to the punch in introducing its online video download store last week. But the reaction from many about Amazon's new Unbox service was a resounding yawn.
Jefferies analyst Youssef Squali proclaimed in a report that Amazon Unbox was "Too Little Too Early." Caris & Co. analyst Tim Boyd echoed that sentiment, titling his report about the new service, "Amazon Unbox: A Little Too Far Ahead Of Its Time."
Citigroup analyst Tony Wible said that Amazon Unbox was "not really out of the box." And in perhaps the most scathing review, Pali Research analyst Richard Greenfield issued a report about Amazon's service with this snarky headline: "Maybe the Studios Do Not Want Legal Internet Downloading to be Successful Right Now?"
The main criticisms of Unbox were that Amazon was only offering a limited amount of movies, they could not be burned to a DVD and that the price to own or rent a download was not much better than purchasing or renting a DVD.
Wireless phone company Sprint Nextel (Charts) also announced last week that it had struck a deal with Walt Disney's (Charts) Buena Vista, Lionsgate, Sony Pictures Home Entertainment and Universal Pictures to offer pay-per-view streams of movies on cell phones. That news was also met with little fanfare.
And in August, AOL launched a video download service that features movies from News Corp.'s (Charts) Fox, Sony, Universal, and Warner Bros. Home Entertainment. (AOL and Warner Bros., like CNNMoney.com, are all owned by Time Warner (Charts).)
Apple looks to take bite out of competition
The nascent movie download business may get a huge shot in the arm Tuesday. That's when Apple (Charts) is widely expected to launch its own online movie service on its popular iTunes store. The company is holding a press event in San Francisco on Tuesday and the invite to reporters showed the Apple logo in spotlights and featured the following message: "It's Showtime."
In order for Apple's movie download service to avoid meeting the same tepid reaction as Amazon's Unbox, analysts said Apple needs to do more than make movies available to be watched on relatively small computer screens and even smaller iPod screens.
"Obviously, most people today don't watch movies over their computer," said John Barrett, director of research with Parks Associates, a firm that tracks consumer trends in digital entertainment. "And there is limited demand to watch the shows on a 2-inch screen."
But analysts said that the fact that Apple is holding a big event, as opposed to just putting out a press release, probably means that it is something else up its sleeve, namely a hardware announcement that could make movie downloading a much more attractive option for consumers.
"My guess is that the announcement has something to do with hardware as well, something to make the TV more accessible to digital media obtained from the Internet," said Phil Leigh, senior analyst with Inside Digital Media, an independent research firm.
Leigh said Apple may announce new versions of the video iPod and/or its Mac mini computer that can connect with television sets so that movies transferred to the iPod can be viewed on a TV.
Other analysts said that allowing consumers to set up a network that links their iPods or computers to the TV is what would differentiate Apple's service from similar offerings.
"The critical component to making movie download service successful depends on getting it from the PC to the TV," said Michael Goodman, a digital entertainment analyst with tech research firm Yankee Group. Without such a feature, Goodman said Apple could look like it is simply unveiling a me-too product.
"It can't just be 'Hey we're Apple and we're going to launch a movie service.' If you don't have other components to connect to the TV, then it's a yawner," he said. "We have CinemaNow, Movielink and now Amazon. There are plenty of places where I can download movies."
Is there enough demand for movie downloads?
Still, even if Apple winds up launching a service that is technically superior to others, it does face a bit of an uphill battle. Critics of Amazon's Unbox pointed out that there is just not enough demand for movie downloads at the present time. It takes much longer to download movies than albums and this could limit consumer interest initially.
"In the best case scenario, movie downloads will probably take an hour," said Goodman. He added though that consumers usually should be able to start watching a video before it is completely downloaded so timing issues may not be as big a concern as some fear.
But given the limited number of mainstream films available online, many people continue to prefer buying or renting DVDs. Barrett said there is one exception though...but it's unlikely that Apple will make a move in this area.
"There are some people out there who download movies but the elephant in the room is that most of the online movie business right now is adult entertainment," he said.
So until there is a wide selection of movies online, it may take some time before downloading becomes the main way for consumers to buy video.
And Leigh said he would be surprised if the major movie studios wind up cutting a deal that allows Apple to have more movies available than competing services since they want to make sure that the movie download business is competitive.
"The movie studios can't afford to give Apple a better deal than Amazon or others offering movie downloads. It's not in their self-interest to have Apple become too powerful," he said.