“The opening up of rental for video on iTunes is not surprising, given that is how most consumers looking for legal paid movie downloads will choose to acquire them, ” says research director Michael Wolf. “Distribution offerings for movies that are in attractive release windows and that offer easy viewing on a TV or portable screen will see the greatest success. ”

However, challenges still remain for this market, particularly competition from legacy VOD services as well as unattractive ownership and rental terms offered by the studios. Cable and IPTV service providers are offering impressive VOD libraries to consumers through their traditional pay video services, and increasingly video service providers such as Comcast are expanding into over-the-top streaming. Additionally, over-the-top rental terms are unattractive as the studios dictate the same rental terms to all distributors, even iTunes.

“Studios are locked into the same 24-hour ‘once-started ’ viewing window and similar pricing for all online rental partners, ” said Wolf. “We believe that over time they will begin to offer greater flexibility, in particular as DVD and other physical media continue to mature and new consumer Internet-to-TV hardware expands their audience of consumers. ”