Warner Bros. execs find Apple's 99 cent TV show rentals too cheap - Page 3

But they have to think about volume. Sure, HD TV episodes are $2.99, so you make gross revenue of $2.99 per episode.

But... If 4 people rent the episode compared to 1 person buying the episode, then you've made more revenue.

It is true that it can be difficult digitally to increase prices, but at the same time as the Internet spreads in reach, bandwidth, and so on, more and more torrenting happens.

So it's a decision the media companies have to make. Just like the publishers. Steve suggests price it affordably and go for volume.

Is 1 person buying 1 HD episode good? Or is 10 people renting it better because it is more affordable, makes more sense to the market, and media companies make more money.

Perhaps at the end of the day the resistance is because they don't want to cede more control to Apple, even though it shouldn't be thought of that way.

Give AppleTV and TV rentals (remember iPad has no access to TV rentals *yet* because it needs at least iOS 4.1) until June 2011 and when WB and others see the numbers ABC and Fox are doing with their TV rentals, they'll relent. Either way by then these TV media excess probably would have golden-parachuted out the window for whatever reason.

Remember the TV rental ecosystem is not just about AppleTV. It covers Mac, PC, iPhone, iPod, and most importantly, starting in a few months time, iPad... I can't imagine a better platform for HD TV show rentals than an iPad for catching up with a few episodes you missed, or a season, it you're the iPad demographic. AppleTV is the sharp point of the spear but iPad is the shaft in this case.

LIke most things with Apple, all it needs is someone (in this case Apple, ABC and Fox) to prove a point and the dominoes will fall in due time. Or, to repeat myself, there'll be so much management change at various companies anyway things will be different through 2011.

Hindsight is 20/20.

I wouldn't watch the WB if they paid me $0.99 an episode.

But then they get to sell commercial time and make between $.75 and $3.50 per viewer per program. They're not just pulling numbers out of their asses - why would they want to make less money per viewer than they already are? You also have to consider that every viewer who rents via iTunes or GoogleTV is one less person who shows up in the ratings, which leads to less leverage when dealing with distributors, advertisers, etc etc.

In the age of the DVR and Netflix and network websites and free "on demand" and torrents, I don't understand paying for a single TV show either. It makes little sense to me.

Indeed, in this day and age, except for something exceptional, I don't understand watching a TV show when it is first broadcast. The DVR has made all this stuff totally obsolete.

Live TV? I surf every time a commercial appears and never watch a whole show. If I want to actually "watch a show", it is on the DVR waiting for me.

Didn't think about iAd before, very good point.

I think Apple is right, these studios just can't see the writing on the wall. Unfortunately for them they are just wasting time and money. Piracy of their programs will rise, interrest in their services & shows will dwindle, and eventually they'll panic & go, "how do we get on board with this new fangled digital era stuff?!"

I think the networks' concern is that this will do away with the concept of "browsing" television when you're bored. People are going to target their television habits with downloads, and end up watching a LOT less television, especially now that nearly everyone is computer literate and know of plenty of other activities to do during leisure (or lazy) time.

People will start watching a HELL of a lot less television if it's a per-episode model instead of an "all you can eat" model. And that's what's going to make the bottom drop out of the advertising market.

Even with the SuperBowl they don't make more than $1 per audience member.

But it’s bulk viewership as opposed to á la carte viewership.

To be more clear, there seem to be three distinct types of sales.

1) One show at one time for mass viewership.
2) One product composed of a many shows for one or more viewers.
3) One show for one or more viewers.

On top of that there are the dynamics of physical media often coming sometime after the season has ended and these digital downloads being available the day after. Not to mention the elephant in the room, the cable companies who are contracted with these local and national networks for large bulk sales that are, for all intents and purposes, guaranteed.

While I hope they can work out some viable solution soon that satisfies all parties in some way, I highly doubt it and expect a dramatic and harmful paradigm shift that will end up hurting many players.

I really don't understand how that makes much of a difference, it still looks like rentals would earn a lot more than ad money on a per audience member per unit time basis.

I just re-ran the numbers for myself. With 140 million viewers, 8 minutes of ads per half hour, averaging $2 million dollars per 30 second ad, the SuperBowl earns the network in ad revenue $0.23 per viewer half hour. Bumping it up to include ads in the lower thirds, let's say there are 10 minutes of ads per half hour, that might be $0.29 per viewer half hour.

Per unit, sure, but the per unit sales are not going to be 35 million or 140 million. If this a separate and additional revenue stream that would be fine, but it will come at the detriment to guaranteed revenue which makes this a very sticky situation.

But it still looks to me that with each audience member "lost" to rentals of the same program, it looks like they're likely making more from those rental audience members than they would if they stuck with the broadcast. So it's still a differential gain as far as I can tell, $0.70/per rather than $0.30/per. I've not seen any corroboration of the claim that they make $3+ per viewer half hour.

I never made a claim about how much they get and the level of my understand of these economic principles has come to end. All I know is that there are very real models that determine a price point based on supply and demand, and even though the supply of digital downloads is virtually unlimited the demand equations alter with with each shift across mediums affecting price points and feasibility.

in a digital world - why not do something like this (I just thought of it):

Sell the first digital copy for 1 cent - the second one for 2 cents the third one for 3 cents - etc - until you get to say $1.99 - that way for the first 200 or so people you have the same total revenue - but you got lots of people rushing to get in line.

Maybe 200 is too few - maybe you need to have 10 cents for the first hour after release - then 25 cents for the rest of the day - then 50 cents for the first week - etc.

Basically thinking that they could find a way using variable pricing as a meter for how popular a title truly is - or have specials based on the top sellers - or something.

This would make more sense for folks who drop their TV service - though in many cases it is bundled with other things like internet and VoIP - so dropping the digital cable for example does not necessarily save $.

Personally - I have bought one TV series on VHS - then DVD - and now BluRay - but doubt that I would ever pay even 79 cents to watch a TV program that I can record on my DVR.

I didn't mean to imply you claimed it. I was explaining my original response to SuperBass' claim that ads generate $.75 and $3.50 per viewer per program, I've not seen figures to that degree anywhere, nor have I determined where those figures could have come from.

Anyways, if someone is comparing between watching broadcasts and internet rentals, then it looks to me that rentals would probably benefit WB more or maybe average out to similar figures. Comparing between internet sales and internet rentals, that depends a lot on elasticity of demand, which I wouldn't have any idea how to approach that without knowing figures for that. If the viewer knows about Hulu and is willing to watch on a computer, then maybe that changes things again. That part can get complicated, I really don't know much about how they determine that, though a lot of boring surveys might be involved, I'm sure they're not going to share any of those figures.

As for bulk audience vs. individuals, Apple does the audience aggregation on the rentals, the networks don't have to worry about counting individual renters, handling transactions or even having to do any special marketing.

++++

I surprised no one else agrees.

Bravo!

If that were their concern, then raising the price point will certainly not encourage the casual buyer. With the exception of a few hit shows, it will drive people away. Their complaint is not that people will watch less TV. It is that they will not make enough money from selling the episodes.

the value of digital media content has been permanently knocked down a lot.

it's classic economics - there is a huge oversupply of all kinds of it now available in so many ways to consumers. there is a massive glut - and i'm not even talking file sharing.

yeah a few hot items can still get a premiun price. but that's just 1-2% of the market. the rest is all in competition for our household entertainment budgets, which have NOT gotten bigger.

so basically you have 10x as much content as a couple years ago chasing the same amount of consumer dollars as before. the result is inevitable - prices fall.

mr warner and his greedy ilk can't accept this of course. they built their careers and fortunes on price gouging in the old days. so they keep trying to bring that back somehow. we're talking custers last stand.

Even 99 cents is generous on a per episode basis. They should all be free I can deal with ads-FF!

No, think of it this way. Everybody loves to watch "How I Met Your Mother"... but what's the show after "How I Met Your Mother"? "Rules of Engagement"? I never heard of it. But people will watch it, simply because it follows their favorite show, and they're comfortable on the sofa and don't want to move. So it will get advertising revenue.

Now, people start downloading "How I Met Your Mother" instead. When it's over, they go on to browsing the web instead of watching whatever comes next. Half of the viewership for "Rules of Engagement" disappears. The ad revenue soon follows.

The TV networks are going to have to find a new economic model, period. It's not about selling shows, for what price. Without the ad revenue, no amount paid by the consumer for the shows will be high enough.

When you watch a TV show on the network site, for "free", the network gets some ad revenue. This model won't last long, either, as people use blockers and other technology, and also basically just ignore online ads.

The networks don't know what to do. So to offset the effect, they are asking for higher per-episode prices.

You are incorrect on 2 counts, first the cable channels all have ads, and second, the apple rentals are HD, HD cable (just basic cable, not even HBO Shotime or anything like that) costs me 80 on comcast and was costing slightly more on uverse! where can you get full hd cable for $60?

OK, Ive gotat say, this story is making the case for alacarte cable...

Give me the option of paying lets say $20 for a cabl;ebox and locals then say $0.40 per channel - thats a premium over the ~$0.29 that I pay now, but I wouldnt need to pay it for lifetime, nicolodian, or whatever. Just let me buy espn and espn 2, (not news or classic or espnu etc) then get the nfl channel, comedy centeral, and such. I want the history channel but none of the other discovery channels because all they show is weddings and house redos...

Keep the packages for folks who want everything or just dont want to make the choices.

There is no need to reinvent teh wheel, AppleTV new and old, suck, I dont want to pay fofr every scrap of non youtube content that I watch at $1-3/episode. the ONLY reason boxes like appletv, popcorn hour, or roku sell at all is because the cable cos force bundle and people want to save money and are looking for ways to do so.

Looking at this all again, we need to assume ad revenue will decline to close to zero.

So how can broadcast networks make money? To answer that question, we should look at the current examples of successful broadcast businesses that are not ad-centric.

I see HBO, Showtime and MTV. These channels have shown the ability to branch off from movies into first rate, Emmy Award winning original content. I think it's safe to assume that content is king, and for a network to be successful, good content is an absolute necessity.

But what is the revenue model of HBO, Showtime and MTV? Subscription. You get the mediocre with the good, all for one subscription price. MTV has worse content, but it has content that is also much cheaper to license or to produce. What the subscription model does is it gives the network the opportunity to hedge their bets against shifts in content quality and viewer preferences. By the time The Sopranos starts to suck, viewers are already into the next show, because they got it as a package with The Sopranos.

This is how digital content is going to have to work too. Subscription.

Forget $0.99 TV shows, rental or not. Forget $1.99 sales. Forget DVD. What the networks need to do is to present the digital viewership with a paid subscription model that can supplant the advertising model as well as the paid cable subscription model that are on the way out.

$9.99 for every HBO show (rentals) for a month. $9.99 for every Showtime show (rentals) for a month. $5.99 for MTV (rentals). Content can be bought on top of those prices.

This model will also have the effect of forcing the networks to really fight for viewers with good content. Viewers will probably choose a few networks to watch and a few networks to pass on. No more of this "it's on so I'll watch it" shit. No more reality crap. No one will rent that. People will compare networks and get the one that has the best content, and maybe the one that has the second best content. Etc.

99 cents US for an episode is too much...

This isn't about "the WB" the network. Which, by the way, doesn't exist any more. They merged with UPN and became "The CW" a few years back.

This is about all shows created and produced by Warner Brothers and its various companies, regardless of the network on which they may appear.

Interesting point.

I think the economics of big budget, big production value broadcast TV is unsustainable. We've already seen a wholesale flight into cheap 'n dirty reality and game shows, with the bulk of the remaining schedule taken up by by-the-numbers police procedurals. There are still the occasional tent-pole event shows that get thrown out there, but most of them fail and they are certainly the exception, at this point.

At the same time, there are the ever proliferating numbers no-budget low-budget web only properties, which make a virtue of their DIY aesthetic and fast turnaround time.

So we may be seeing a sort of merging of the two, where "broadcast TV" becomes synonymous with You Tube clip shows and Internet vibe-ish reality stunts. I mean, when ABC can broadcast something as half-assed as "Win It In a Minute" you know there really isn't any lower limit to what they'll put on the air.

And as you say, I think the provenance of more money, better production value stuff will move entirely to subscription cable, where they can afford to take some chances and stick with shows that were designed around concerns other than a single nights ratings.

You have to ask yourselves, Do they get more than 99 cents from a regular viewer based on ad sales? And, if not and I'm guessing they don't, why do they want more than that for a single episode sale? Given that iTunes sales will not likely reduce their ad revenues much anyway, a 99 cent sale sounds like just bonus. Yes, I know, they don't get all the 99 but still... how greedy can you get?

Then you add up the season's rentals and you come close to $13 bucks - for rental. Something that people would pay for a single DVD to purchase. Bunch of money grubbing holes if you ask me.

True. You realize, though, that Apple would love to put the price of buying down, way down. Properly, that's what a digital file that you download should be worth.

I think that prices of .25 and .50, though, are for streaming. No copies. Click and watch, though I'd like the file last for a week at least. Then, if you want to keep a copy, that should be about $2.00 per. I think you should be able to put it on all your devices, watch it how many times you want. But anywhere outside of your network?

How about putting up your server of stuff, and people can stream it from there, and pay $.25 or $.50 per, no matter if they buy it from Apple or you? And the server would be an authorized reseller, so you'd get to keep maybe .10 out of every user you help? Kind of like Amazon works, with you putting a link to a book on your page? You get a little bit for a referral.

The trouble is that Warners is worried that the precious 25k crowd of actual ratings viewers won't agree with you. They would think the price is fine and rent and not watch, thus the shows ratings go down, the networks have to make good on ad money blah blah

That's something a lot of folks don't realize. The nets and studios are not crediting shows with online ad money, downloads etc. A show sinks or swims still based on the Nielsens and their select group of viewers. Even Tivo counts are from the same bank of 25k viewers.

So the whole tv industry is terrified of anything that could damage those numbers. Even 1 lost sample viewer is a nightmare to them.

The whole thing is rather sick to me. They should be counting all forms of income and not sitting there with their heads up their analog world asses

I can somewhat sympathize on that part though, their affiliate stations have a lot of fixed costs. If the affiliates can't make those costs back, they'll drop shows, drop the network or even close down. But at some point they're going to have to embrace the reality that linear programming isn't what it used to be, and may well go away except for special events. For me, setting programming to time slots doesn't work.

While I agree charging over a dollar for a TV show is ridiculous. I'm also not going to pay $5 per movie, when I can Netflix ANYTHING I want for $9 a month. "Oh but it's instant". Whoopty f*ckin doo, at a 500% mark up, I'll wait for the extra 2 days it takes to get my next movie. And when that fails, Red Box... $1/night. Can't beat that.

They are fools for charging $5 per rental, Netflix and Red Box are going to destroy them in this market.