Originally Posted by ntrpy
Glad Fox is not being as ridiculous as NBC on this issue. The only problem it's not up to Apple or Fox, or any other company to determine what the "fair" price is. The consumer determines that.
In actuality the market sets the price - not the consumer, producer or distributor individually. Let's assume that you have a producer making the product (studios), a distributor bringing this product to the consumer (Apple, Amazon, etc.) and a consumer who uses the product (you and me). The producer will do his best to set the price to the distributor so that he can make as much money as possible. This is not being greedy - the company has shareholders and they deserve to make as much money as possible from the market. Note that most companies will try to maximize profit rather than revenue, but in a developing market this is not always true. Also, maximizing profit usually doesn't mean setting the highest price - you look at a price vs demand curve and plot sales/profit vs price. At some price the curve will reach a maximum and that is where you will likely set the price.
The distributor is usually just passing along their costs to the consumer plus a small margin for their profit. This can range from a few percent to 35 to 40% depending upon the market. In this case, I believe it is <10%, but I could be wrong.
The consumer will evaluate the product at the price that gets to them after passing through the distributor. If the price is higher than the perceived value, the product will not sell to that particular
consumer. If the consumer feels the price/value is good, they will buy. The overall market is the group of consumers willing to pay the offered price to the distributor. If this market is not large enough, the producer will decide that they cannot make enough profit to recoup their investment. Therefore, they stop offering the product for sale.
Keep in mind that the overall market here is consumers who watch on TV (over the air, cable, satellite) plus those who watch on a producer website plus those willing to purchase/rent a DVD or an electronic form of the show. In the first two cases the studios make little money directly from the consumer - it actually comes from advertisers willing to pay the producers money to bundle their ads with the shows. Additional revenue comes from the distributors (cable/satellite) payments to the networks to carry their programs. In the last two cases, the consumer is actually paying the studio money to watch the product without paid advertisers.
Currently the market is trying to establish a balance between the different channels of distribution and the price for each. The studios could stop piracy immediately by offering the shows for free with no DRM through the distributors. In that case, the distributors don't make money and the studios don't make money. Why would they do this? In addition, the studios would then start to lose significant chunks of advertising revenue which today accounts for the bulk of their profits.
Apple's role is to facilitate this developing market while allowing the market to set a price. By establishing a firm price with no negotiating room they are preventing this from happening. walk into any music store. new releases are generally on sale to build hype for a few weeks. After that they go up to a high price. Over time, as sales fall off, the stores reduce the prices to unload the inventory. Evenutally they wind up in bargain bins for a few dollars. Why can't or shouldn't iTunes support this type of pricing model? I am not saying they should, but I want to know why they shouldn't. It seems to work for almost any other product.
Anyway, long enough post.