The Motley Fool has a post today titled: "Will Apple Kill Netflix?". While that may seem a bit harsh for something that is still technically unofficial (iTunes Movie Rentals), long-term that could very much be the case if Netflix isn't a combination of careful, lucky, and quick.

As I've been saying for a while now, everyone has been dropping the ball with regards to digital distribution. Sure Netflix has their system in place, but it is so limited and not user-friendly that I'd almost rather wait the 2 days for the DVD in the mail. And yes, video-on-demand from any of your local cable companies is basically the exact same thing, but again the experience is awful and the titles very limited.

I've also been saying that while Apple has arguably been the company that has dropped the ball the worst (mainly by thinking people wanted to buy massive amounts of movies they don't really love, when really they want to rent them), they could also swoop in at any time and take over with two simple words: movie rentals. Louis Gray noted the same back in April: How Apple Could Crush Netflix Now.

If Apple can eventually build the iTunes Movie Rental store into a vast collection of thousands of movies both new and old that are easily streamed to your TV via a device like the Apple TV and easily put on your iPod/iPhone they are going to win the digital film distribution war just as they won the digital music one. Others may downplay simplicity and user-interaction, but it is a vital component of boosting a service's mass appeal - and no one is better at that than Apple.

Netflix dilly-dallied for too long with their half-approach to digital distribution and Blockbuster has been basically non-existent in the realm - a horrible mistake for the name once and probably still synonymous with movie rentals. The only viable competition to Apple that I see right now is Amazon's Unbox. Lets break it down.

You need to have 3 things to succeed here:

1) The right price for the right content
2) A way to get to the living room
3) A user-friendly system

While Netflix has #1 partially covered (their streaming is free for members of the service, but I say 'partially' because it only has select titles) they seemingly had a deal to cover #2 by putting their movie on TiVo boxes in the living room back in 2005, but let it fall apart. Why its taken them over 2 years to resurrect this idea is anyone's guess. #3 they are not doing a very good job at.

Blockbuster currently has none of the 3 covered and though they bought Movielink a few months ago, has seemingly no solid plan to get any of them covered anytime soon. They are in big trouble.

Amazon's Unbox service has #1 for the most part covered. Some movies are available to rent on the service, and some are a really good price (some as low as .99 cents for 30 days!). Others are more expensive and not available to rent - the whole thing is confusing. For #2 they have a partnership with TiVo - so they're good there, but it would be nice if more people had TiVo boxes. For #3, they are lacking. The system is Windows-only, is clunky, and as I said, confusing. If you disagree just look at what shopping for something on iTunes is like versus on Unbox. Unbox gives me a headache.

There are other competitors such as Vudu, but they have largely failed to catch on in any significant way - be that right or not. Microsoft also has an interesting alternative with movie rentals over Xbox Live for the Xbox 360. The problem here is content - there is nowhere near enough movies - and an awful pricing scheme. If they want mass appeal, they need to kill those stupid Microsoft Points right away. They have HD content which is great, but if I'm Joe and Jane Consumer I'm not going to convert all of my actual money over to confusing Microsoft Points (why does $1.25 = 100 points, why not $1.00 = 100 points or better, = 1 point?) and then make purchases - if I even have an Xbox 360 with a big enough hard drive to begin with, which, unless I have kids, I probably don't.

Verizon FIOS movies on-demand could be interesting as well - but again, has limited availability.

So I see Amazon's Unbox as the clear #1 competitor for an iTunes Movie Rental store. Where does that leave Netflix? Well, they'll be fine in the short-term while all of the logistics get sorted out, but if they don't quickly upgrade their service and get into the living room, they are in trouble. Who wants to wait 2 days for a movie that in my experience is unplayable (due to dirty or scratched physical discs) at an unacceptable rate - when you can have a guaranteed digital version of a movie immediately?

Netflix could buy itself some time if the Blu-ray/HD-DVD war resolves itself soon. If people start buying those players in mass and assuming Apple/Unbox don't start doing HD movie rentals right away, they could have a window with which to keep themselves alive and work on their digital distribution. But make no mistake, eventually rentals will all be digital - including HD ones.

So will Apple kill Netflix? In the long-term if Netflix doesn't evolve, yes. Blockbuster? They might be too busy killing themselves to worry about it. If you think Apple's announcement isn't a big deal at all, look no further than both Netflix and Blockbusters stock prices today - both down around 5%. Any guesses as to why?


More thoughts:

• Movie Rentals Are Coming, Should Keep iTunes Steamrolling Ahead, Make AppleTV Take Off
• Throw Away Your Apple TV
• Microsoft Is Winning the War for the Living Room
• iTunes Movie Retals $2.99 for 30 Days, Hopefully Try-Before-You-Buy As Well
• 2oth Century Fox Films to iTunes? The Moguls Giveth, The Moguls Taketh Away
• No Apple TV Update Until 2nd Half of 2008? To Include an LCD?
• Confirmed: Apple TV Is Failing, 8 Easy Steps To Fix It
• Mac Nano and Apple TV 2.0
• Netflix To Stream Unlimited Movies? Sort Of...Well No.

[photo: flickr/indi.ca]