Analyst: No More Studios on iTunes Before Holidays

October 9th, 2006 at 3:00 PM - Apple Stock Watch by Brad Cook

Piper Jaffray analyst Gene Munster on Tuesday said that recent meetings with four of the six major film studios revealed that they likely wonit be adding their movies to iTunes before the holidays because of fear over retaliation by big retailers, as well as issues with content protection and pricing. He wrote: "Our checks lead us to believe other studios will have content on iTunes in the next six months, but not likely before the holidays."

So far, Disney, which encompasses Miramax, Touchstone, and other labels, is the only major studio offering movies through iTunes. The company was likewise the first to make TV content available on iTunes, when the video-enabled iPod debuted a year ago.

Regarding the fear of retaliation, which was the biggest complaint he heard, Mr. Munster explained: "Given services such as iTunes often undercut pricing at [Wal-Mart, Target, Best Buy, etc.], these retailers are concerned about the impact it will have on their DVD sales. It is possible that retailers will shift focus to other products if DVDs become less profitable due to lower priced online competition. Some of the studios refer to this as iretailiationi [sic] and they are concerned that this could significantly disrupt current business models in the DVD market."

Content protection ran a close second; studios are concerned about films made available through iTunes becoming victims of piracy. Mr. Munster wrote: "For most studios, they are happy to see Disney serve as a iguinea pig,i and we expect that if Disneyis content continues to appear to be relatively safe from casual pirates, other studios will become more comfortable with offering content on iTunes."

In addition, the current pricing structure for movies was "a significant hurdle," according to the analyst. He elaborated: "Specifically, these studios want to have the ability to price certain movies at a premium to less popular content and are opposed to Appleis rigid pricing strategy." Apple currently sells older films for US$9.99 each, while new movies are $12.99 during the pre-order period, as well as the first week of sales, before jumping to $14.99.

Mr. Munster concluded: "A couple of the studios indicated that they expect to have content on iTunes within six months, but it may require some tweaks to Appleis pricing guidelines to get them there. We would not expect additional studios to sign on with iTunes before the holidays, however, as most studios recognize that this change could disrupt their holiday business at retailers."

He retained his "Outperform" rating on Appleis stock, with a $99 12-month price target. At 3:25 PM EST on Tuesday, the companyis shares were selling for $73.52, down 1.49% for the day.

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