Apple Inc.'s iTunes Store -- already struggling against rising competition for music listeners -- is losing the battle for video viewers as well.
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The company's market share for renting and selling movies has been falling for several years, tumbling to between 20% and 35% from well over 50% as recently as 2012, according to people with knowledge of the matter.
No third parties track market share in the digital-movie business, making exact figures impossible to obtain. Different Hollywood studios do different amounts of business with Apple, but several of them report a marked decline in iTunes' leadership position.
An Apple spokeswoman, who didn't dispute the market-share estimates, said Apple is focused on providing customers with video content across subscription services such as Netflix and HBO, as well as iTunes, where she said movie purchases and rentals have increased over the past year and hit their highest level in more than a decade.
Apple's growth appears to be a consequence of overall industry increases, despite its market-share losses. Last year, total U.S. digital-movie sales and rentals rose a combined 12% to $5.3 billion in the U.S., according to PricewaterhouseCoopers.
Apple's challenges in video come as the company looks to double by 2020 its $24 billion services business, which includes App Store sales, Apple Pay and Apple Music. iTunes, where Apple sells and rents films, has served as the foundation of that services business since 2003 when it made its debut as a digital store for music downloads before expanding to include TV shows and movies. Services, the company's second-largest business, have taken on increasing importance as Apple seeks to reduce its dependency on the iPhone, which accounts for two-thirds of annual sales.
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iTunes video, music, book and magazine sales last year accounted for an estimated $4.1 billion in revenue, making it the second-largest services business behind App Store sales, which were nearly twice as large, according to estimates by Bernstein Research.
Apple's iTunes has faced a host of rising competitors in recent years in the market for renting and buying new movies online, which typically cost about $6 and $15 each, respectively.
One that has had a big impact is Amazon.com Inc., which in addition to its Prime subscription service rents and sells movies on a "transactional" basis. Its market share in that business has recently risen to around 20%, studio executives who are involved in home-entertainment sales say, as it has been highlighting its entertainment offerings.
Another is Comcast Corp., the nation's largest cable provider by subscribers, which has long rented movies on its set-top boxes and in late 2013 began selling digital copies as well. It now has about 15% of the combined market, according to people involved in digital movie sales.
"Comcast and Amazon have been quite aggressive of late and taken quite a lot of the business," said Dennis Maguire, a former president of home entertainment for Viacom Inc.'s Paramount Pictures.
In addition to steeper competition, Apple faces broader changes in the movie rental and sales market as consumers increasingly watch movies and TV shows offered through streaming-subscription services from Amazon, Netflix Inc. and others. Their popularity is a big reason why video-on-demand movie rental revenue in the U.S. declined 4% to $1.8 billion last year, the first year it has dropped in recent memory, according to PricewaterhouseCoopers. Digital movie purchase revenue grew 21% to $3.5 billion, compared with a 29% increase the prior year.
"That's a challenge for the whole industry," said Bruce Leichtman, president of Leichtman Research Group, which analyzes the media industry.
Apple's market share declines are independent from the broader slowdown in the business, but both affect the company.
The transition mirrors what happened to iTunes' music business after Spotify AB began offering a subscription service in 2011. Just as Apple responded by launching a $10 music-streaming service in 2015, it is moving to beef up its video offerings in a subscription service. To help make such a service more appealing, Apple recently hired the former chiefs of television for Sony Pictures Entertainment to spearhead a move into original video and has released its first program, "Planet of the Apps," which is available along with some other video content to Apple Music subscribers.
The company also has tried to capitalize on the broader shift to subscription streaming services by selling subscriptions to Netflix, HBO and others through its app stores, including an Apple TV app store and operating system introduced in 2015. It takes a 15% cut of the subscriptions it sells. The Apple TV app store offers more than 1,300 video channels and 6,000 video, gaming and other apps, which Apple calls the future of TV.
Apple's iTunes struggles come following years of steady growth in the business. After launching iTunes movies in 2006, the company quickly took a dominant position in movie sales and rentals largely because of the success it was already enjoying in digital music sales. No other competitors had as sophisticated an online store or a suite of devices to play its content, like the iPod and Mac. Netflix was still relying on the U.S. Postal Service to mail DVDs to subscribers and entertainment was a tiny business for Amazon.
In the decade since iTunes launched movies, other companies offering transactional video-on-demand and movie purchases, in which consumers pay for each piece of content (as opposed to all-you-can-eat subscriptions), have increased the quality of their offerings. Comcast has invested heavily in its X1 set-top box that offers the ability to search on-demand content by voice and Amazon has beefed up its entertainment business.
Apple's loss of market share in the digital movie business isn't uniform across genres, people who work with the company say. It has promoted independent films and signed deals for exclusive rights to some produced outside the major studio system, making it a stronger competitor in that space.
Write to Ben Fritz at email@example.com and Tripp Mickle at Tripp.Mickle@wsj.com
(END) Dow Jones Newswires
July 09, 2017 17:06 ET (21:06 GMT)