Steve Jobs' Movie Deal: A Loss Leader For Apple (AAPL)

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stevejobs.jpgiTunes' big studio deal announced yesterday? It's going to be an expensive one for Steve Jobs who's taking a loss on each film sold. Some terms from the WSJ: Apple (APPL) is paying $16 to the studios for each new release, and will sell the films to consumers for $14.99.

It's a small price to pay to gain a foothold in the market, but a sign the studios aren't planning to give up the margins they've enjoyed for decades in the traditional home video business.

But it's also a change for in strategy for Apple: While big boxes like Wal-Mart and Best Buy have been happy to use media as an outright loss-leader, Steve Jobs has previously tried to break even or better with iTunes sales.

But here's a question: Did Apple get a better deal than the $17 Wal-Mart pays the studios for new releases on DVD and is Wal-Mart cool with that?

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11 Comments

I_am_legend said:
Hey looks like there is a way to get Apple to concede. All the nay-sayers that say there is no leverage....content is still the key. Just have to know the best way to use it...scrap the old model and embrace digital early, but on stricter terms.

Matthew said:
If true (loss), this is unreal. Further proof that the studios still don't get it.

The collective hate towards movie studios and music labels on behalf of consumers is white-hot.

My suggestion would be for these bozos to make it as _easy_ as possible (at a profit, of course) to get content into the hands of those willing to pay.

Apple is piracy's arch enemy: why you fsck with Apple, Stud-bles? Why? Grease the wheels. Let Apple make a fair profit, they're giving consumers a _very_ easy way to buy your junk.

I_am_legend said:
@Matthew - the studios get it. That is why they are working with Apple now (possibly Vudu and Netflix (once they get a set-top) in the future). Interesting to note that movielink is not announcing anything. But back to the topic, Apple wants to sell the AppleTV, no matter what. That is why they can take a hit on the video, and make up on people overpaying for a stripped down Mac. Apple is piracy's enemy - I am guessing if you poll a good amount of iPod users, the majority of songs will be pirated. Apple does not care about piracy, they care about selling devices, that is it. Sure iTunes has helped bring in legitimate sales, but that was not their intent. Intent was to create an ecosystem to let the iPod grow. And I like Apple and their products, but I have to call a spade a spade.

I_am_legend said:
@Matthew - from my last comment, that might be a good poll to see from SAI. How much of your music on your device is pirated vs. bought through iTunes, Amazon, ripped from owned CD copy.

matthew said:
@i_am: you suggest they get it, but if the studios are in fact forcing Apple to buy the movies at $17 and sell them for $14, I argue that they are insanely out of it.

My point is, they should make it _easy_ for Apple to sell the content. That means letting Apple make a little profit. It's that simple.

I_am_legend said:
@Matthew - by all means I am not saying those studio nut jobs are smart, but they are waking up. A new release DVD sold prices anywhere from $15 for garbage to almost $30. This is still a bargain for the user who does not want to pay $30. The $3 dollar difference is not going to be huge for a consumer who just has to have the new release. But for Apple, the studios know that the device is pretty much useless without content, face it, not going to buy that device to watch YouTube. And they know what margins Apple is getting on the device. So instead of getting a share of the AppleTV revenue (since they are basically the drivers of adoption due to content), they will get it from the movies. Apple is still making a killing of the Apple TV, and this price will not last long, if Apple dominates.

CAPS LOCK IS THE CRUISE CONTROL TO COOL.

DvB said:
With the exception of iTunes, I own nothing that Apple has every produced. However, this is a smart deal for Apple, even if they are losing money on each movie. They realize that once a user begins to assemble/load content on iTunes, the probability of purchasing an iPhone or Mac significantly increases. Microsoft's media center is a joke.

DvB, You poor deprived soul! Why live in darkness and despair when Apple stores are so easy to find?
C'mon in, the water's fine. And it really is just wanter, not Kool-Aid. Peace

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Source ? said:
"Apple (APPL) is paying $16 to the studios for each new release"

Source ?

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