Yesterday, Apple (AAPL) announced that shortly it will start selling HD quality movies for download from the iTunes store. While it sounds like a great idea, the business model is completely flawed and clearly the movie studios are living in a bubble. As I have mentioned in the past, how on earth can the studios continue to charge more for a digital download than a physical DVD?
I really don't get the thinking from the studios when they think they can make a business model out of charging $19.99 to download Quantum of Solace from iTunes when the average price to buy the physical DVD, from retailers like Amazon, is $16.99.
With digital downloads, studios don't have to pay to produce the DVD or any of the packaging. The bandwidth cost to download a two hour movie costs pennies and online promotion of digital content is a lot less expensive than other forms of marketing. Yet even with all those savings, the studios charge more for digital downloads. While one could say this is an iTunes issue, it's not. Look at CinemaNow or any of the other online movie services and you'll see that digital movies cost between $3-$5 more than buying the actual DVD.
Why is no one questioning this? How can this be the future business model for the online consumption of entertainment? Many of us have waited a long time to get to the point we are at today, with broadband connections capable of getting movies and having multiple devices to play them back on. Yet even with all the progress we have made, studios will keep the business models from being successful. Part of me really wants to see all the studios fail just so they learn their lesson. I know it would not be good for the online video industry but studios continue to run their business on one simple principle - greed.