Thursday, December 27, 2007

The future of the Post in Delivering Movies

Both the Financial Times and the Wall Street Journal are reporting that Fox and Apple have reached an agreement to set up a movie rental service. In this service,users would download a movie from the iTunes store at a cost of $2.99 for one month's rental. This is cheaper than anything offered by Netflix or Blockbuster by mail and every video rental store. This service also offers the convenience of immediate delivery, even if the immediate delivery may take as much as two hours, and restrict the use of a home computer or home computer network during that period. (See Fortune article if others are innacessable.)

Movie rental services are not new, as four other services, including Amazon, have offered rental services since 2006. However, Apple is the dominant supplier of audio and video mp3 players, and has 70% of the worldwide and 80% of United States market share of purchased downloads of music. Apple's entry into the rental market opens download rentals to the largest established market of people already accustomed to downloading media. Also in 2009, when television broadcast goes high definition and the large installed base of standard definition televisions become obsolete, consumers will have substantial incentives to replace their television with a high definition television which will have inputs that allow easy connection to an iPod or computer.

Now what does this mean for the Postal Service? Netflix has been one of largest volume success stories introducing new volumes. While the new Fox - Apple agreement will not immediately affect volumes, the Postal Service could be a significant loser in this new technology. (For other winners and losers, see Silicon Alley Insider.)

In order to extend the life of the existing physical delivery model, both Netflix and the Postal Service will need to find ways to cut the costs of handling the Netflix product to keep Netflix competitive. It would appear that they have a year to find a way to do this. It is time to get started now.

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