Beg, buy or steal video content - the iTunes flawed rental model

ThinkSecret has another Apple scoop today, this time that iTunes is planning a rental model for video on iTunes.

Apple was able to corner - indeed, almost singlehandedly create - the market in legal music downloads because it brokered a deal with music rights owners so convenient for users that for many of them the incentive to steal evaporated. Where the alternatives are to buy or steal a good, the user is essentially being asked to make a rational economic calculations like any other - a cost/benefit analysis of whether the chance of being caught plus the severity of the criminal penalty is sufficient to deter them from the convenience and cost-effectiveness of the theft. Before iTunes, millions of Napster, Kazaa and Gnutella users made the calculation that the potential costs of stealing music online - of being caught and punished - were slim to nil and the benefits - of not having to pay, queue for CDs or tolerate onerous DRM - were considerable. Thus a black market emerged.

Apple's apparently imminent announcement of video rental over iTunes shows that either Apple, or the movie studios, or both, have failed to learn the lessons of the music industry. Currently it is easy and simple to steal films and other video content via BitTorrent so millions of people do so. Of course, there will be some consumers whose marginal decision will be to buy a DRM-heavy rented film from iTunes rather than steal it from BitTorrent with the attendant (seemingly trivial) legal risk. Some will make a moral calculation that they do not wish to steal - Forrester says (sub req'd) that around 22% of online youth has stopped downloading copyrighted music for fear of getting caught but roughly the same percentage has done so because they think it is wrong. The most substantial consumer group, therefore, is the one making a simple cost/benefit calculation that they are unlikely to be caught stealing media. The hope of the movie studios must either be that a more vigorous and high-profile policy of prosecutions will make for a different dynamic within their industry - or they are hoping for no reason at all that evidence to the contrary consumers will rent DRM-laden films from iTunes.

Comments

[Fred Haan]

I think that your assesment of this situation is completely wrong. What alternatives are out there right now? Netflix? Nah, takes too long. Bittorrent, nah, might get caught (as I am over 20, I am seriously considering that risk). The fact that the rental period will be limited is not a problem to me, I would wish to watch a movie within an hour after it is downloaded. To a lot of people it has to do with convenience. I don't care about the price, I don't care that I don't own the movie. I want a large movie library and once I decide, I will want to watch the movie asap, and only once. I really do believe that this is a great step in the right direction. I foresee problems during the first 6 months but everything takes time.

[Seamus McCauley]

Fred: re "Bittorrent, nah, might get caught (as I am over 20, I am seriously considering that risk)"

You're quite right, of course, that some people in your position are already deterred by the possibility of being caught and prosecuted for stealing music or video over the net. But I think you're trying to generalise about a whole market from your own experience and perspective! BitTorrent traffic accounted for 35% of all Internet traffic a year ago, and its creator Bram Cohen measured 40 million users of the technology in a recent Wired interview (http://qurl.com/11j1m).

I'm with you, incidentally - the risk of being prosecuted is too great for me to justify stealing movies off the net. But at least 40 million people are already on the pirate ship, so I don't think you can dismiss it as an alternative.

[wincros]

I don't think that the rental model is a mistake. Most movies are viewed once and never again. Who wants to waste money and storage space on movies that mostly will never be played again. It is very different from the music model. People tend to listen many times to their tunes. Apple may be smarter than you think.

[Daniel Eran]

"The Online Music and Movie Rental Myth"

http://www.roughlydrafted.com/RD/Home/2994B804-46AE-4367-A4A9-46FAC702CF19.html

According to proponents of this myth, the real road to obscene profits in movies, music, software, and other digital media lies with online subscription rentals, not direct sales. They're wrong, here's why.