Apple and Wal-Mart slug it out in online movie market

Apple iTunes is still way ahead of the pack in the online movie sales business – but its market share fell last year and it needs to watch out for Wal-Mart, says analyst iSuppli.

Despite fierce competition from Microsoft, Wal-Mart and others, the iTunes store was the top player in movie electronic sell through (EST) and internet video on demand (iVOD) last year.

It accounted for more than two thirds of consumer spending in these areas, at 64.5 percent, down from 74.4 in 2009. And it controlled three-quarters of the US EST business over the year – all the more impressive, says iSuppli, given that the business underwent a significant expansion in 2010.

“Apple faced serious competition from Microsoft’s Zune Video and Sony Corp’s PlayStation Store, as well as from Amazon and — most significantly — Wal-Mart. However, iTunes managed to grow because of the introductions of the iPad and the second-generation Apple TV, which have spurred the company’s movie rental offerings and have invigorated the iTunes multi-screen ecosystem,” said Arash Amel, research director for digital media at iSuppli.

“We expect that in the United States, Apple’s strong performance in iVOD will allow it to continue to bypass the video on demand services offered by many major cable operators.”

Microsoft represents Apple’s fastest growing competitor in the field, thanks to the launch of the Kinect. Its market share shot up from 11.6 percent in 2009 to 17.9 percent last year.

Sony kept its number three position with a 7.2 percent share, up from 5.7 percent in 2009 – but is facing rising competition in the US from Amazon VOD and Wal-Mart’s Vudu service.

And it’s Vudu, says iSuppli, that we should be watching.The company’s aggressive drive saw consumption shoot up during the fourth quarter, following $0.99 promotional pricing on iVOD movies and support for a wider range of living room devices, including Sony’s PlayStation 3.

“The future of the online movie business may come down to competitive battle between Apple and Wal-Mart,” Amel said.

“Although Wal-Mart is not on the charts yet, the company soon will become a major player if its current momentum continues. The company already represents a critical source of revenue for the major Hollywood studios because of its massive sales of Blu-ray and DVD movies — and now is expanding this business into the online realm.”