TV Networks Continuing to Resist Apple's Effort to Slash iTunes Pricing

[BoulderBum]

You are disappointed that content producers are resisting moving away from a business model that makes them money to a business model that is currently not sustainable by a long shot? Really? You also think that makes content producers guilty of anticompetitive practices? Seriously?

Studios make about .65 cents a viewer on average for broadcast television (.85 cents for the Super Bowl). It's incorrect to suggest that an online, on-demand model can't net similar amounts of money even at .99 cents a show.

The reason for online media not making as much money at present is simply because of volume, and that brings a bit of a paradox. The masses won't transition to an online on-demand model until a wider variety of shows come at affordable prices, and the studios don't want to spur along progress because, yes, companies like Comcast aren't especially fond of the prospect of losing their cash cow so they resort to gaining anti-competitive leverage to fight the trend toward getting programming online.

Comcast and others certainly are exerting leverage over studios to hold fast to an aging cable business model and slow progress of internet-provided content (just look at Comcast's fight against net neutrality), and I do indeed think that Comcast's purchase of NBC gives them the ability to throw a wrench into the works in regards to a deal with Apple (and others).

 

[Deslock]

It's not comparable to the music model

For decades, our society has been (for the most part) OK with paying $5-$15 for 1-2 hours of music, but accustomed to not paying for TV. Since TV is scheduled, we simply set aside time to watch our favorite shows (and apart from a few exceptions, don't go out of our way to watch them more than once).

This contrasts with music. The vast majority of people want to listen to their favorite songs repeatedly and the ability to select specific songs/albums for playback without purchasing them is a relatively recent development. You need to either pirate them, use a subscription site, or use grooveshark. Otherwise, you're limited to random playback within genres (satellite radio, Pandora) or basic AM/FM radio.

Now consider that Hulu, Comedy Central, ScyFy, and various other channels already stream TV for free (with ads). For premium TV, Netflix is cheap ($9/month) and works well if you're willing to wait for your shows to come out on DVD. And even $10/month cable includes HD local channels (ala Clear QAM). Compounding things is that there's no solution for live HD sports broadcasts through these all-in-one web-based models (you have to get a specific subscription service like MLB.com, which BTW sucks due to in-market blackout restrictions).

Add it all up, and there's not much incentive for me to spend $1/episode or $30/month.

Time for Apple to add a DVR function to iLife.

Why would Apple allow you to record TV shows when it wants you to buy TV shows from iTunes?

Yeah, I don't see Apple including DVR. No biggie... EyeTV works well for me.

 

[HobeSoundDarryl]

Studios make about .65 cents a viewer on average for broadcast television (.85 cents for the Super Bowl). It's incorrect to suggest that an online, on-demand model can't net similar amounts of money even at .99 cents a show.

You do understand that if your numbers are real, 99 cents per show can't possibly work. Average American households are made up of right around 4 viewers. So even if the studios made just 50 cents per viewer "as is", they would need to make $2 per show to make the same amount of money in a digital download replacement model. At your suggestion of 65 cents per, they need to average about $2.60 per show to make the same amount of money.

From our (consumers) point of view, we intuitively believe digital downloads should be priced a lot lower for a variety of reasons. So we'll even seek out stats like you may have to support such arguments. But then we overlook the pieces of math that refute our stances on this issue.

From the business (studios) point of view, they- like every other company- want to make more revenues this year than they made last year. They don't want to embrace a major change and dramatically cut their revenues just to satisfy consumers who believe such stuff should cost a lot less. Show them a digital download model where they make a little more than they do now, and they'll be all over it. But that model is probably not one where shows are sold at 99 cents (or less) each.

How our system works is like this: what changes can I (company) make to make more money? Dramatic cuts to revenue is never a well-received recommendation within a company. The backup is "how do I reduce the level of my (company) losses when I'm losing money?" Again, dramatic cuts to the top line is rarely a tactic such companies want to take in efforts to reduce losses.

This (video) industry is not losing money. In fact, it's doing very well... even against the backdrop of all of the negative impacts of a bad economy. If we want a migration to digital downloads because its good for us (consumers), we have to be able to show the companies how its good for them. Just as WE measure a lot of the "good" in how much less we might be able to pay for such stuff, THEY measure a lot of the "good' in how much more money for such stuff they can make.

Our logic about no packaging, not giving Walmart a cut, cutting out the cable/satt middlemen, and so on makes great sense to us. But if we genuinely want the change, we have to imagine a solution that makes great (more) dollars for them.

And before we run down the (make it up with) "volume" argument, imagine going in to see your own boss today and pitching cutting your company's product prices in half or to a third with an argument that you can make up the lower margins in volume. That's the very same scenario that these concepts face.

 

[BigQid]

Solution is rental

1. U can watch on Hulu 2. People download shows of bittorrent for free
People want to do the right thing, but $2 for something you will probably watch once is high. The solution is cheap rentals. Maybe you own the show for $2, but rent it for $.50 to $1. I'd rather rent the shows though.

 

[BruiserBear]

I've long believed that 99 cents is the only reasonable price for TV shows on iTunes. It's just silly considering the networks certainly don't earn a dollar per viewer watching the shows on TV, so why on earth do they think I'm going to pay them $3 to buy an HD version? That's ridiculous.

Make them impulse buys at a dollar and I'll buy a lot of them, and I have a feeling a lot of other people would too.

 

[OdysseyExplorer]

1. U can watch on Hulu 2. People download shows of bittorrent for free
People want to do the right thing, but $2 for something you will probably watch once is high. The solution is cheap rentals. Maybe you own the show for $2, but rent it for $.50 to $1. I'd rather rent the shows though.

I totally agree with you here! Let's just hope that they don't kill Hulu or make it a pay service!

 

[OdysseyExplorer]

I've long believed that 99 cents is the only reasonable price for TV shows on iTunes. It's just silly considering the networks certainly don't earn a dollar per viewer watching the shows on TV, so why on earth do they think I'm going to pay them $3 to buy an HD version? That's ridiculous.

Make them impulse buys at a dollar and I'll buy a lot of them, and I have a feeling a lot of other people would too.

iTunes TV shows are definitely an impulse buy for me, otherwise I would just pick up the DVD. I usually only buy shows off of iTunes if I want to watch something on my iPhone on a plane ride or something like that. I could just rip a DVD to iTunes and then import it to my iPhone, but if it's only $0.99, then why not opt for that in a hurry?

 

[BoulderBum]

You do understand that if your numbers are real, 99 cents per show can't possibly work. Average American households are made up of right around 4 viewers. So even if the studios made just 50 cents per viewer "as is", they would need to make $2 per show to make the same amount of money in a digital download replacement model. At your suggestion of 65 cents per, they need to average about $2.60 per show to make the same amount of money.

The numbers are as real as I could find with a quick Google search, but I think your reasoning is flawed and I distrust your statistics. First, the average American household size is 2.6 as of 2006:

http://www.msnbc.msn.com/id/14942047/

Second, not everyone in a household watches the same shows/watches at the same time.

Thus, I contend that an online model can be easily as profitable as the aging over-the-air model, it's simply a radical change from current business models so the industry resists and holds on to the old, more established way of doing things.

One point I'll concede is that the studios may need to adjust pricing and terms, but I just don't buy the claim that studios can't be roughly as profitable as they are now with a new on-demand approach.

Besides, studios need to offer something to consumers as an alternative to piracy before those consumers become accustomed to free illegal content.

On a side note, I read an interesting article this topic on Digg today, where a Blockbuster big wig is blasting the studios for holding back innovation:

http://torrentfreak.com/piracy-isnt-killing-the-movie-industry-greed-is-100222/

"The greed of the music studios hasn’t gone unnoticed by Paul Uniacke, head of the Video Ezy and Blockbuster video rental chains. “Studio greed is what’s holding back video-on-demand,” he said in response to the studios demands to pay huge sums of money upfront if they want to offer on-demand streams."

"“Movie studios are still as arrogant as the music moguls were before digital downloads and piracy destroyed them. The only thing that’s protecting the movie studios (from more widespread illegal downloading) now is file size,” Uniacke added."

 

[Rocketman]

NEW episode pricing

Resistance is not futile.

The reason the networks want to protect pricing is to assure a stream of new content is produced after electronic pricing becomes prevalent.

How much would you pay for 10 NEW episodes of SNL uncensored, or West Wing season 5, or CSI Chicago? If the answer is $5.99 not $0.99, you would actually get them vs. not get them now or ever.

Would you vote with your dollars and cents?

Rocketman

 

[LethalWolfe]

The numbers are as real as I could find with a quick Google search, but I think your reasoning is flawed and I distrust your statistics. First, the average American household size is 2.6 as of 2006:

http://www.msnbc.msn.com/id/14942047/

Second, not everyone in a household watches the same shows/watches at the same time.

Thus, I contend that an online model can be easily as profitable as the aging over-the-air model, it's simply a radical change from current business models so the industry resists and holds on to the old, more established way of doing things.

If you could show Google, Hulu or Apple what they are doing wrong I'm sure they'd have no problem making you a very rich man.

In a down year broadcast and cable advertising in the US generated about 21 billion dollars and 19 billion dollars respectively in 2009. In the first half of 2009 online video ad revenue, which is growing year over year, generated about 477 million dollars, according to this article. As of March 2009 the iTunes store had sold a total of 250 million TV shows. By comparison American Idol averaged 50 million viewers a week last season and Americans spend an average of 28hrs a week watching TV. A business model for online music sales cannot just be grafted onto online video sales and expected to work because people don't
'consume' both mediums in the same way.

How to make TV over IP work is a complex problem because lots of questions have to be addressed and lots of things controlled by a variety of companies have to change in concert to make it work. Who is going to provide a clean, simple solution to get this streaming content to people's TVs? TV was supposed to but it's not really lighting the world on fire (or, should I say the US since it doesn't work overseas). How many gizmos are people willing to hang off of their TVs? Between DVRs, DVD/BR players, cable boxes, video games, and 'internet boxes' (roku, boxee, TV, etc.,) that home entertainment center sure is getting crowded. Who is going to pay for broadband to as accessible as over-the-air TV is on a global scale? Speaking of broadband, a downside to video over the internet is that the more popular your videos are they more money it costs you to host them compared to TV where the distribution cost doesn't change depending on if 20 or 20 million people tune in.

Is the internet video business model ready to challenge the 'old guard' today? No. Will it be ready in the near future? No, not IMO. Will it be ready eventually? I think so yes. And considering my livelihood right now is based on internet video I'd love to be 100% wrong and suddenly have the ad revenue and the big budgets that the broadcast world has but that's just not the reality of the situation these days.


Lethal

 

[Jaro65]

1$ for every episodes... I'll start buying (or event renting) as long as it's the HD version

I would still rather watch them on Hulu....

 

[BoulderBum]

If you could show Google, Hulu or Apple what they are doing wrong I'm sure they'd have no problem making you a very rich man.

Online providers need greater availability, more convenience and competitive pricing, but the studios/providers hold them back.

I realize that gross revenues for conventional vs. on-demand TV from the internet is certainly higher, but that's simply an issue of volume. More people watch conventional TV than purchase TV shows from iTunes.

If the tables were turned, I contend the studios could make a similar amount of money, and consumers would have a much better experience (watching shows on their own schedule, being able to watch content on their iPhones/iPods, having anything they want available at the push of a button, etc.).

I think the reason tables haven't turned, however, is because the industry isn't letting folks like Apple offer the best possible product, so consumers aren't ready to make the transition. Many networks like Food Network don't have their shows on iTunes, and TV junkies could spend a bit more per month on their bill if all the shows were $1.99.

If, however, iTunes had live events, more networks and pricing competitive with cable television subscriptions, I think you'd see an Apple TV in every home in America.

Apple is trying to make headway in this area, trying to convince studios to let them offer a subscription model or drop the price of some shows to .99c, but they're meeting an unfortunate amount of resistance.

 

[LethalWolfe]

Online providers need greater availability, more convenience and competitive pricing, but the studios/providers hold them back.

Why should content creators rush into a business model that isn't viable and leave behind one that is? Do you know why more content producers aren't skipping the networks and studios and just creating original content for web distribution? It's because there's barely any money in it. You can't make '24' or produce the Superbowl on 'web money'. Advertisers won't pay enough for it and neither will consumers. Part of it the problem is a perception of prestige. Prime time network TV is *the* place to be for advertisers where as it feels like the internet is typically seen as the gutter of the video world.

I realize that gross revenues for conventional vs. on-demand TV from the internet is certainly higher, but that's simply an issue of volume. More people watch conventional TV than purchase TV shows from iTunes.

Volume you say? As of Dec. 2009 estimates say YouTube served up about 419 million streams a day in the US (135.8 million unique viewers/month, 40% of online video traffic) and they can't turn a profit. Well, it's hard to convince advertisers to pay good money for amateur videos of stupid pet tricks or copyrighted media redistributed w/o permission so what about so called premium content (like what Hulu has). Hulu served about 32 million streams a day in Dec. 2009 (44.1 million unique viewers/month, 3% of online video traffic) and they are around the break even point, AFAIK. Hulu also rakes in about 20% of all online video ad revenue in the US even though they have such a small overall market share. And again, these sites only cover the costs of hosting content. If they had cover the costs of content creation as well I don't think either site would exist.

If the tables were turned, I contend the studios could make a similar amount of money, and consumers would have a much better experience (watching shows on their own schedule, being able to watch content on their iPhones/iPods, having anything they want available at the push of a button, etc.).

You can contend all you want but that doesn't change the reality of the situation as it is today. I could contend that feeding everyone in world would solve world hunger but the difference between saying all we need to do is get everyone food and actually getting everyone food is massive. Again, who is going to foot the bill to make sufficiently fast broadband as available world wide as cable, satellite and OTA TV? What is it going to take to make the one internet-to-TV set-top box to rule them all? How do you solve all the international distribution problems? What is going to get the advertisers to spend more money on web ads? Who is going to make sure Apple doesn't turn into the Walmart of online media distribution? The devil is in the details and this is just the very tip of the iceberg.

I think the reason tables haven't turned, however, is because the industry isn't letting folks like Apple offer the best possible product, so consumers aren't ready to make the transition. Many networks like Food Network don't have their shows on iTunes, and TV junkies could spend a bit more per month on their bill if all the shows were $1.99.

If, however, iTunes had live events, more networks and pricing competitive with cable television subscriptions, I think you'd see an Apple TV in every home in America.

Phase 1. Put videos online
Phase 2. ?
Phase 3. Profit
Is not a viable business plan (thank you South park).


Lethal