Apple iTunes Movie Rentals: What's In It For Akamai? (AKAM)

Dan Frommer | January 17, 2008 1:26 PM

itunes-movie-rentals.jpg
It's way too early to assess Apple's new iTunes movie rentals, but we can make one call: The move could be a nice bump for Akamai Technologies (AKAM), the content delivery network (CDN) that Apple uses to send movie files to your computer.

CDN industry experts estimate that Apple likely pays Akamai between 10 cents and 15 cents per gigabyte of data it transfers. That means a 2-hour, 1.3-gigabyte movie costs Apple between 13 cents and 20 cents to deliver.

So far that hasn't meant much for Akamai. Jobs says Apple has sold 7 million movies since Sept. 2006, when they first went on sale -- about 437,500 per month. Assuming a 2-hour average movie, Apple's estimated monthly hosting bill for movie downloads could be between $57,000 and $87,000 -- a rounding error for Akamai, which recorded $161 million in sales during the third quarter of 2007.

So what if rentals take off? If sales doubled overnight, Akamai would be transferring nearly 900,000 movies a month, for an estimated bill between $117,000 and $180,000 -- an annual run rate between $1.4 million and $2.2 million. Still not much for Akamai.

But let's say Apple (AAPL) could someday rent as many movies online as Netflix does in the mail: 1.6 million per day. That could make Akamai an estimated $208,000 to $320,000 per day, or between $76 million and $117 million per year. We're assuming it'd be on the lower end of that scale, since Apple would be able to negotiate even better volume discounts. But it'd be real money.

See Also: Apple Not Ditching Akamai For Content Delivery
Apple Wins The Movie Wars! The Movie Wars Haven't Started!
Macworld: Jobs Unveils iTunes Movie Rentals

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Screenking said:
Okay, let me rephrase that - unlikely in the short to mid term. Consumer habits have to change, and despite the changes to Apple TV, it's still another specialty set top box that needs to be adopted.

Also, keep in mind -- rentals don't work with the majority of the installed iPod base bellow the current generation (and iPhone).

Consumers can rent movies from their TV set today with no additional hardware and no credit card, and can actually begin to "watch immediately." Apple's 30 second start is really relagated to consumers with the fastest connections - a small fraction of the installed broadband base. This could mean more like 20-30 minutes before the movie can start for many.
David Dugan said:
Doesn't Apple use Akamai to also deliver music from iTunes? That's got to be worth another buck or two. (I heard somewhere that Apple sells a few songs here and there.)
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Apple generated some $2 billion in iTunes music sales in the last year or so. I don't think the 1.6 million rental number is necessarily unlikely.
Jesse said:
These calculations are similar to the ones I came up with. However, I don't know the movie licensing or maintenance costs add up to: http://fishtrain.com/2008/01/17/the-impact-of-bandwidth-costs/
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1.6 million rentals per day would equal somewhere in the neighborhood of 1.75-2 billion dollars a year in revenue for Apple, or around 40% of BBI's 2007 revenue. Seems pretty unlikely to me.

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