According to new research from The Diffusion Group, close to 25% of broadband households would be interested in an iTunes online movie service if titles were priced at $10 each. The report found that broadband households are to varying degrees interested in such a service, with interest declining rapidly as price per title increased. Total interest declined to 14% at $15 per title, 12% at $20 per title, and 10% at $25 per title.

Speculation regarding Apple's entry into the online movie space has heated up as next week's Worldwide Developers Conference is set to launch. Industry insiders believe that CEO Steve Jobs will use his August 7 keynote to announce a new video iPod and an iTunes movie download service. Regardless of whether such a service is a rental-only or purchase-to-own model, Apple's entry into this space will be viewed by many as a turning point for online movie distribution.

"Given Apple's success in music and video downloads, extending this model to include full-length movies seems natural," said Michael Greeson, founder of The Diffusion Group and co-author of the report. "It was never a question of 'if' Apple would enter this space, but more a question of 'when' and 'in what form' - and many believe Apple is about to answer both questions."

Apple's entry into the online music market is widely believed to have single-handedly fueled the development of today's digital music industry. Given its track record, many believe it can do the same for online movie distribution. However, as Greeson noted, downloading music files or short video programs for consumption on a PC or portable device is a very different activity than viewing full-length movies. "The value proposition is very different if only because full-length movies are normally viewed in a theater or in the comfort of your living room on a home entertainment system. While movie purchasing models have proven to be flexible (capable of supporting brick-and-mortar, on-demand, and even mail order models), movie viewing preferences are well-engrained and will be difficult to alter."

To evaluate how an Apple iTunes movie download service would be received by consumers, TDG commissioned a June 2006 study of more than 2,000 US households regarding their interest in and price sensitivity toward two types of Apple iTunes-branded online movie services - the first involving movie downloads to the PC and the second involving movie downloads to a iTunes-branded set-top box connected directly to the primary home TV. Researchers examined consumer receptivity to both of these scenarios across a variety of prices points, identified the core group of consumers most likely to adopt these services, and profiled this segment across a number of characteristics.

The report also contains an analysis of Movielink and CinemaNow, the two leading online movie distribution services, and why these models have to date failed to capture a critical mass of users. Both properties have been negatively affected to varying degrees by the following realities: limited movie selections; weak brand awareness; and high pricing.

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Note: Parts of this article were reprinted with the permission of The Diffusion Group.