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Apple TV, iTunes and Movie Rentals
December 18, 2007

The rumor mill is churning once again as analysts and enthusiasts gear up for MacWorld 2008 in January.

Piper Jaffray analyst Gene Munster issued a note to clients this week that he believes Apple will announce a much anticipated movie rental service from its iTunes store that will include connectivity to the television through the Apple TV media extender.

"If Apple begins renting movie downloads on iTunes, we expect a related software update to the Apple TV enabling movie rentals direct to the Apple TV. In fact, the Apple TV software currently includes 'iTunes Store settings' in its settings menu, but the option is essentially inactive," he wrote. "We expect this setting to be activated soon; users will likely be able to log into their iTunes accounts directly from the Apple TV and browse movie rentals, then download them directly to their Apple TV."

Munster also said he expected Apple to announce new content partnerships with one or more movie studios.

The Piper Jaffray analyst said that Apple is delaying the use of the iTunes setting until it has secured rental deals with enough movie studios. He said Apple may announce such a deal with one or more movie studios at Macworld, and may simultaneously announce movie rentals on iTunes and the Apple TV.

"Indeed, we have been expecting iTunes movie rentals for nearly one year, but due to pricing disagreements and DRM-related issues, the studios and Apple have not yet come to an agreement," he explained.

Munster maintained his Buy rating and $250 price target on shares of Apple.

Apple TV has yet to make a splash in the market. Forrester Research reported last week that Apple TV has sold just 400,000 units -- well short of its million-unit estimate for the year.

Apple would likely allow for a two-pronged service: renting movies that could either be watched on a PC via the iTunes player or streamed to Apple TV, or even as Munster points out, an add-on to the current Apple TV software to enable users to download rentals right from the device -- like TIVO and Vudu have both done. The price points of around $300-$400 are about the same.

And this is less likely happen, but if Apple TV could double as a DVR --- I think it would blow the competition out of the water.

Posted by Ned Randolph on December 18, 2007 | Comments (5)