The iPhone lets me buy movies on the fly, which gives me a great convenience. But it's small. The iPad, on the other hand, lets me buy from anywhere, but it's large enough to make movies enjoyable. If I'm about to get on an 8-hour flight, maybe I buy a book and rent a movie. The fact that I can pay a small amount of money, get something to watch on the plane, and never have to worry with physical packaging, that's nice.
Certainly that encroaches on Apple TV. But Apple TV is a bastard son anyway.