Will The iPod Kill Blockbuster?

http://www.forbes.com/technology/2007/12/28/apple-movie-rental-tech-media-cx_bc_1228apple.html

Apple's World
Will The iPod Kill Blockbuster?
Brian Caulfield 12.28.07

Burlingame, Calif. - Forget the cavernous big box stores that laid waste to the retail landscape a decade ago. Apple Chief Executive Steve Jobs' tiny iPod has turned his company into a category killer for the digital era--first wiping out music stores and now, potentially, the corner video store.

Starting in mid-January, the Cupertino, Calif., computer and gadget maker will take on Blockbuster and Netflix by renting movies from Fox on its iTunes digital media store, according to a report first published in the Financial Times earlier this week.

While older models of the iPod--and its low-end iPod Shuffle--can't play digital video, the gadgets now have a proven record of disruption, with customers bypassing record stores to tap into illegal distribution networks, along with Apple's iTunes music store, to fill the up their devices.

The result: Sales of CDs fell more than 30% to 614.9 million units last year from a peak of 881.9 million in 2000, according to the Recording Industry Association. Once sprawling chains, such as Tower Records, have shuttered.

Apple, however, isn't the first major tech company to offer digital video rentals. Amazon rents movies to users of PCs and TiVos via its Unbox service. Microsoft is even offering digital movie rentals on its XBox 360 game console. Neither company, however, poses the same threat to DVD rental companies as Apple, which has an installed base of more than 100 million digital media devices that consumers carry in their pockets.

Since Apple first began offering video content in its store two years ago, Jobs has expanded the company's video offerings. The weak link: the AppleTV set-top box effort. Some industry observers estimate that the device has sold fewer than 1 million units since it went on sale earlier this year, so video rentals could surely revive the effort.

Despite Apple's movie rental push, Blockbuster and Netflix won't disappear tomorrow. They likely will continue to slug it out in the business of renting digital video discs. Blockbuster has moved to counter the threat from Netflix, which mails movies to customers who queue up their orders online, with a Web-based service of its own. Netflix, meanwhile, allows customers to rent digital movies for their PCs.

Still, their days might be numbered: The iPod has killed before. It will kill again.

Shares of Netflix sagged 2.19% to $26.85 in Friday trading. Shares of Blockbuster fell 1.03% to $3.86. Apple rose 0.40% to $199.37.