Apple's TV Rental Plan Can't Be Ignored By Media Companies

Apple Inc. (NASDAQ: APPL), which revolutionized the music business with 99 cent digital downloads, is poised to do the same thing with television.  The idiot box may never be the same.

According to Bloomberg News, the maker of the iPhone, iPad and iPod ” is in advanced talks with News Corp. to let iTunes users rent TV shows for 99 cents and is in discussions with other media companies about similar deals.”

This not without controversy.  As Reuters notes, several media companies including CBS and NBC are worried that the proposal would undercut their existing iTunes revenue.  People currently buy TV episodes for $1.99 each for repeated viewing.  Apple will overcome this resistance because the economics are too compelling.

Buying TV shows makes little sense, particularly as ad-supported services such as Hulu grow.  Hulu recently began charging for some shows and doesn’t require consumers to store their favorite episodes on their hard drives. If Rupert Murdoch’s media empire allows 48-hour rentals,  other broadcast and cable networks are sure to follow.  They would be fools not too.

Renting TV programs also gives media companies another source of revenue independent of the whims of advertisers and cable companies.  It also is something that will appeal to many people, particularly the millions who commute long distances.  I speak from experience as someone who endured four hours in a bus between South Jersey and New York City for about a year.  I regularly filled my iPod with episodes of my favorite TV shows and video podcasts which I watched once and promptly forgot about.  They are on my device to this day.  Why do people — myself included — insist on collecting stacks of DVDs that they watch once or never view them at all? I guess for the same reason they let books collect dust — it makes them seen sophisticated.

Apple has hit on the right price that people would be willing to spend to see their favorite shows. The company also will put Netflix Inc. (NASDAQ: NFLX) and Amazon.com Inc. (NASDAQ: AMZN) in a tight spot.  They may be forced to cut prices to compete against the Apple colossus. It will also help put the final nail in the coffin of Blockbuster Inc.

The 99-cent TV rental is an idea whose time has come.  Apple will likely face pressure to charge more for premium channels such as HBO and Showtime.  This could set the stage for an interesting showdown.

Stay tuned.

–Jonathan Berr