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Apple TV Show Rentals: Was 99 Cents Too Expensive?

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In 2010, Apple announced the ability for Apple TV owners to rent television shows for $.99, the price of most iTunes music downloads. CEO Steve Jobs explained that the pricing was intentionally aggressive, and that the company would make revenue on the volume of rentals.

This past week, however, Apple deleted all options for renting television shows, shuttering a rental service that only Disney and Fox had signed on for in the first place. Apple TV owners can buy shows for $2.99 each.

So was the rental service shuttered for lack of consumer interest or a because of technical issue with the upcoming iTunes in the Cloud?

An Apple spokesman told All Things D's Peter Kafka, who broke the story, that Apple was following the consumer trend.

"iTunes customers have shown they overwhelmingly prefer buying TV shows," Apple spokesman Tom Neumayr said.

Fox corroborated the story by saying it hadn't seen much traction, telling Kafka that the best model for its consumers was to purchase content.

When Jobs announced the TV rental service he said that other television content owners would be announced. It turns out that no other content owners agreed to participate, on fears that consumer volume wouldn't make up the drop in price. Apple forced Disney and Fox to drop their rental price from $1.99 to $.99 a few months ago, just before it added the $2.99 purchase option.

Watch or Rewatch?

Consumers make decisions on rental versus purchase based more on their interest in rewatching that show.

"It really depends on the re-watch value of the television episode," wrote commenter TheBrett on the AllThingsD site. "If there's almost no chance I'll ever watch it again anytime soon (which is the case for most television episodes), I'll rent it. Otherwise, I'll just buy the episode."

That sentiment doesn't apply to many Apple TV owners, however. Since most TV shows aren't available for rental, and viewers would rather buy shows just as they do movies and music, Apple was forced to abandon the rental model.

Still, the timing of the announcement is suspicious. Some argue that Steve Jobs's resignation means there's no one pushing the $.99 model. A technical glitch in iTunes in the Cloud, however, could also contribute to the timing.

Suspicious Timing

For those who own a Mac with the OS X Lion operating system, the iTunes in the Cloud option allows users to download their iTunes purchases to any OS 10.7 Mac that has the user's Apple ID.

This feature will also be part of the upcoming iOS 5 for iPod, iPhone, and iPad, and will allow the same multi-device downloading for Apple TV and Windows desktop and laptop computers via an updated version of iTunes.

Still, it's odd that Apple killed off movie rentals before it released iTunes in the Cloud, as the cloud service is expected to be launched within the next six weeks. Having seen iTunes in the Cloud in action for apps and iTunes music purchases, the service provides a simple way to download content to multiple devices.

It's possible that during testing Apple found that rentals could be downloaded to multiple devices, as they are considered temporary purchases. If this were the case, the level of complexity in the digital rights management for rentals -- a small portion of the overall revenue that Apple derives from sales of music, movies, and television shows -- could be less than the cost of maintaining a separate rental DRM system.

Also, the ability to download rentals to multiple machines, just like any other piece of media from the iTunes Store, may have run contrary to the terms of service agreed to by Fox and Disney.

Those testing iOS 5 and iTunes in the Cloud are under NDA, so we may never know whether abandoning television show rentals was partly technical and partly business driven.

One thing is for certain, though: Apple has settled in on the $2.99 television show purchase model. This model gains the company a larger group of content owners, but the shift hands Apple a rare loss in its quest to dominate the set-top box market.

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