iTunes Movie Rentals: It's the Usability, Stupid
One of the best things iTunes Store has going for it is usability, but the Movie Rentals section (which, basically, doesn't exist) is simply broken. The categories don't let you filter for rentable movies, so (as of writing) it's almost impossible to find movies to rent unless you just choose popular picks or new releases.
Next, the iTunes Store suffers a major weakness relative to Netflix which isn't so apparent when shopping for music, but is horrible when looking at movies. Here's a clue: Coyote Ugly is rated 4.5 stars, and the only reason it's 4.5 and not 5 is that a few people are annoyed at the nudity in the unrated version (which seems a bit like complaining a nature documentary is full of animals). Meanwhile, "An Inconvenient Truth" is rated 2.5 stars owing to a huge number of 1 star reviews from, basically, insane people. (Rating it 1 star doesn't make you insane, saying that the scientists quoted in the film have been disowned by the majority of the scientific community and the claims have been disproven by NASA does.)
Basically, the movie reviews are of similar quality to the reviews on YouTube, which is to say horrible.
Now that iTunes is competing head-to-head with Netflix, Apple really needs to lift its game in the reviews department. Netflix's reviews are very well done -- they basically weight reviews by people with tastes similar to yours more strongly, and reviews by other folks less strongly.
It seems to me that Netflix is to video what iTunes is to music -- a very successful business that is undermining the way that the content distributors prefer to do business. A person pays NetFlix $20 (or so)/month and sees all the movies he/she can be bothered to see. After a while he/she stops going to movies and largely stops buying DVDs. When my wife or I see an interesting trailer, we usually just add it to our Netflix queue -- thus making the studio, what, $0.25? $0.10? I don't know how much Netflix pays for a DVD (including rights to rent it out), how long a DVD lasts, whether Netflix pays full replacement cost for damaged DVDs, whether Netflix pays royalties per rental, etc. etc. but I can't imagine it all adds up to much more than say 25% of the cost of a DVD divided by 20.
The apparent high participation of studios in iTunes rentals reflects the fact that the studios are going to earn FAR more from the iTunes rental model than from the Netflix rental model (or Blockbuster's imitation). For now, the iTunes rental library is slated to be ~1000 movies by the end of the month; last time I checked NetFlix's library was 60,000, and there's plenty of stuff that hasn't made it to DVD.
If and when there are 1000 or more movies to rent on iTunes, I don't think anyone will be able to find them. E.g. if I type "Robert DeNiro" into the iTunes search widget, it doesn't bring up "RONIN" -- one of the current top rental titles. If I search for "Pixar" it doesn't find any of Pixar's feature films.
Improving iTunes Rentals
Obviously, you need to be able to filter for movies you can buy vs. rent. I imagine this will happen pretty soon.
Next, the search function seriously needs to be fixed, and it's something an intern could probably do in a day or two (while the library is so small), but it will become a bigger deal as the library gets bigger.
Apple seems to be stuck with a broken user review system -- but I guess on the positive side it can probably all be fixed in one place (just look at the way the same system works in apple.com/store). One of the major problems with this kind of review system is that lots of people treat the system as a way of giving feedback on the shopping experience or some random other thing (like price, or upgrade policy, or whether some other product they've gotten confused with this product was good). For movies or songs where the price and shopping experience are (generally) fixed, this is probably less of a concern.
Then there are obvious synergies -- such as discounting the purchase of a movie you've just rented (the way they discount albums if you already own tracks). This kind of thing will let Apple compete with DVDs and Netflix in ways that don't let them fight back.