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A hole in the Apple - May 2, 2008

If further proof were needed that Apple's much-ballyhooed deal with the major studios to start selling movies through iTunes on the same day they become available on DVD is somewhat-less than a game-changer, the Wall Street Journal is reporting this morning that Apple is taking a haircut on every movie it sells. Citing a "person familiar with the matter," the Journal said the studios are getting a wholesale price close to $16 for the movies Apple plans to sell for $14.99.

Previously, iTunes had been reluctant to engage in loss-leader pricing, looking to at least break-even, for instance, on sales of music tracks. The fact that it has been forced into the position of loss-leadering movies suggests the studios have learned from the music companies not to get into the business of subsidizing Apple's hardware sales and hung tough on the wholesale price.

Of course, the studios are also highly motivated to protect sales of DVDs and the retailers who sell them--a zero-sum game as far as their deals with Apple are concerned.

The question now is whether even Apple, for all its marketing prowess, can persuade consumers where others have not that loading up their hard drives is a better way to store their movie library than simply putting it on the shelf.
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