Apple's new pitch to Hollywood

    With 8,000 movies and 50,000 TV episodes, the iTunes Store now needs to drive sales

    by Philip Elmer-DeWitt

    Apple (AAPL) makes a big deal about how many apps have been downloaded from its App Store (3 billion as of January) and songs from the iTunes Store (on track to reach 10 billion this week).

    But when it comes to how many movies and TV shows it has sold, the company is pretty tight-lipped.

    What Apple will talk about is how many Hollywood movies and TV episodes are available on the iTunes Store. The charts at right are drawn from the numbers Apple has shared with analysts from time to time since Oct. 2005, when the store first started selling videos. Five years later, TV episodes seem to have plateaued at 50,000, while the number of Hollywood movies continues to inch upward and now exceeds 8,000 (2,000 in high-definition).

    But reports on sales come few and far between. Reviewing Apple's press releases and quarterly earnings calls, we found only three reports of TV show sales: 50 million (Jan. 2007), 200 million (Oct. 2008) and 250 million (March 2009). For Hollywood movie sales, there were even fewer reports: 1.3 million sold (Jan. 2007), 2 million sold (July 2007) and 33 million "purchased and rented" (March 2009). This at a time when song and app sales are are pouring in by the billions.

    All this helps explain why Apple is pressing so hard to strike new deals with Hollywood.

    The talk in media circles Monday morning centers on a report by Brian Stelter in the New York Times about Hollywood's resistance to Apple's latest sales pitch: to lower the price of TV episodes to $0.99 from $1.99 and to sell subscriptions to "best of TV" packages for $30 a month.

    Although PBS has started offering selected kids episodes for less than a dollar and CBS has indicated it is willing to consider prices that low for some of its shows, the deals are being characterized as experiments to see if 99 cents is, as Apple claims, the magic price point at which video sales take off.

    "We're willing to try anything, but the key word is 'try,' " one TV network executive told the Times off the record.

    Pricing is coming up now, Stelter adds, because Apple is keen — "some TV executives privately say desperate" — to line up content before its new iPad tablet computer debuts next month.

    UPDATE: Craig Moffett, Sanford Bernstein's cable and wireless analyst, objects to the Times' characterization.

    "The issue is not, as the article would have it, simply the derivation of a P x Q demand curve (i.e. would they sell more than twice as much at half the price), but instead is one of a battle for control, and of the ultimate balance of power between content, distribution, devices, and applications. The P x Q calculations of the content owners must balance a complex set of trade-offs involving the potential substitution effects of existing revenue streams ranging from advertising, DVD sales, and cable and satellite affiliate fees, and from future revenue streams that might otherwise arise."

    Or to put it more bluntly, will Hollywood find itself trading, in the memorable words of NBC's Jeff Zucker, analog dollars for digital dimes?