iTunes Rentals Already One-tenth of Netflix and Growing

Apple’s TV show and movie rental business at the iTunes Store is about one-tenth the size of Netflix’s business, according to estimates from Gleacher & Company analyst Brian Marshall. Combined movie and TV show rentals are likely generating over US$60 million per quarter in revenue for Apple, and that number will likely continue to rise.

“Despite iTunes’ TV/movie availability being only half as old at Netflix’s service (2005 versus 1999, respectively), it is our belief that iTunes’ rental business is already roughly one-tenth the size of Netflix (approximately 475,000 daily rentals on iTunes versus 5.1 million daily rentals on Netflix),” Mr. Marshall said.

Based on his models, Apple could be on its way to generating over a billion dollars in rentals over the next few years. “If AAPL can grow its rental business at the same rate as NFLX,” Mr. Marshall said, “we believe iTunes’ annual TV/movie rental revenue could exceed $1 billion within five years (of which we estimate Apple’s take is roughly 30%).”

Some of the iTunes Store rental business growth may be related to the recent release of the second generation Apple TV. The updated version of the home media entertainment appliance gave up its hard drive in favor of flash memory and video rentals instead of video purchases, and Apple has already sold over a million units.

Mr. Marshall added “Apple continues to gain share across its major product lines (iPhones, iPads, Macs and iPods).”

Mr. Marshall is maintaining his “Buy” rating and $355 target price for Apple’s stock. Apple is currently trading at $325.52, up 0.05 (0.02%).