Want another sign that digital music is growing? Apple is now the second largest U.S. music retailer, behind Wal-Mart. According to NPD, which tracks music sales, Apple’s iTunes jumped over Best Buy and become number two last year.

That a digital music service is now beating many brick and mortar retailers is pretty big news. I think consumers are finally understanding that buying digital music is a perfectly acceptable alternative to buying CDs.

In fact, Apple said that it now has over 50 million iTunes Store customers, and has sold over four billion songs. If each song costs 99 cents, then that’s about $4 billion in revenue since Apple launched iTunes.

Not only does that mean that Apple is dominating physical stores, but it is also dominating online music retailers. According to Point Topic, there are about 500 online music services operating in over 40 countries. Point Topic says that consolidation is inevitable and smaller companies will be acquired by the big services.

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Now that Apple has announced that it is renting movies off iTunes and improved Apple TV, it looks like the rental/download market is getting ready to blow up. According to analyst firm ABI research, video downloads will grow from 215 million in 2008 to over 2.4 billion in 2012. About half of all downloads will be for online movie rentals.

Today, the online movie rental business is slow-going. There’s Amazon Unbox, NetFlix Watch Now, iTunes and a few other scattered video download businesses. Additionally, competition will come physical rentals like NetFlix and Blockbuster, as well as cable and satellite companie. So the competition will be fierce and now everyone’s trying to get a piece of the pie now before a clear video download winner emerges.

Additionally no one is sure what the business model will be: subscription, rent-to-own, rent. And what kinds of restrictions should be set on downloadable movies, such as copying to DVDs or portable media players.

[ABI Press release]

Technorati Tags: movie rentals, online movies, iTunes, Apple, Apple TV, video downloads, online movie rentals, Internet video

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Forbes has a pretty good article detailing how Apple got the new Apple TV device wrong, calling it an “iFlop”.

When Apple first announced a new living room device to stream and buy movies from your TV, people had high hopes. Apple’s iPod and iTunes work so well and have tremendously successful. How could Apple not get a next-gen TV device right?

Says Forbes:

“Six months later iTV is a flat-out iFlop. Renamed Apple TV upon launch, the ballyhooed box has sold perhaps 250,000 units–far behind the 1 million sold for the iPhone, which was priced twice as high and has been on the market less than half as long. Apple, which declined to let FORBES interview Jobs and other execs for this story, provides detailed sales data for the iPod and other digital wonders but won’t reveal any numbers for Apple TV; apparently the truth is too humiliating. A company spokesman declined to respond to written questions.”

Surprisingly. Jobs said at a May tech conference that the Apple TV was a “hobby” and even Apple isn’t giving much shelf space to Apple TV in their own stores. Apparently Apple has been trying to drive the price of its video downloads, much to the chagrin of the studios. Apple wants to sell movies for about $10, while the studios want $20 per download.

The movie studios got their way with Vudu, a start-up video download service, which allows users to rent movies for 24 hours (Apple TV has no rental option) and charges $20 for purchasing downloaded movies.
Apple also had problems pricing Apple TV.

According to the Forbes article:

“It wanted to keep the price low at $300, but that resulted in cheaping out on components. The first box had a tiny hard drive (40 gigabytes to store fewer than 50 hours at standard-definition TV resolution) and an older, slower Intel chip. Even then the box’s insides cost a total $237, says research firm Isuppli. That left a scant $62 in gross profit, or 20%, to be split by Apple and retailers (barely half Apple’s typical 37% gross margin). The stores went along, but when Apple TV faltered, they had even less incentive to push the new product.”

Worse yet, is Apple’s relationship with Hollywood. NBC Universal dropped plans to put its new Fall TV shows on iTunes and switched to Amazon. Again, the issue was pricing—NBC wanted higher prices, while Apple stood firm on its price.

Bonus: Unfortunately, Forbes requires free registration to read their articles online. Try BugMeNot to get access to free user names and passwords for sites that require free registration.

Technorati Tags: Apple, Apple TV, Vudu

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Yesterday, NBC Universal unveiled its online video venture with News Corp., called Hulu.com. It got lots of press everywhere and they’re even keynoting the next Streaming Media show. Today, NBC Universal said it was pulling its video content from iTunes so they can put it into Hulu instead.

Today’s New York Times said that NBC Universal wants more control over pricing and packaging of its TV content. From the Times:

“The media conglomerate — which is the No. 1 supplier of digital video to Apple’s online store, accounting for about 40 percent of downloads — notified Apple of its decision late yesterday, according to a person familiar with the matter who asked for anonymity because negotiations between the companies are confidential”

I’m sure all the other iTunes content providers would like a better deal too. In July, Universal Music Group said it was pulling most of its music out of iTunes and just allowing certain content for sale. Does that mean that there will be a mass exodus from iTunes now? The New York Times says that talks between Apple and NBC Universal are still ongoing. Over at All Things Digital, they say NBC may be just playing hardball.

But I still have questions about Hulu. Will it be a free ad-supported, user-generated site like YouTube? Or is it going after the more mature “pay for play” iTunes market? 

Not much is known, so it’s wait and see about Hulu.

Technorati Tags: Hulu, NBC, YouTube, iTunes, Apple, NBC Universal

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Bloggers are spreading rumors that Apple may be acquiring Miglia, makers of TV Max+ and other products that allow customers to view TV on Macs. This would give the soon to be released Apple TV product recording ability.

The rumor spread because last week, Elgato pulled its license for its EyeTV product from Miglia. And Apple removed all Miglia products from the Apple Store.

Miglia allows Macs to record TV in MPEG-4 formats, including H.264 and DivX formats. It also has RCA, coaxial, and S-video inputs for video capture. Combine these products with the USB port on Apple TV and viola! Instant DVR capability. Unless you forget about Apple TV’s paltry 40 GB storage space which would barely be able to hold a week’s work of American Idol shows in HD.

Bloggers are also speculating that Apple can use Miglia to enable recording through iTunes, as well as Apple TV.

Nevertheless rumors are rumors. And people are saying that Miglia is chatting with Apple in a “friendly way”.

Since Apple never pre-announces products or news, (unless you count this) guess we’ll have to wait and see.

Technorati Tags: Apple, Apple TV, DVR, PVR, Miglia, EyeTV, Elgato, digital video recorder

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