This is exactly my problem with this whole thing. The iTunes market is a secondary market for the shows. The Studios make there money from advertising on air broadcasts, not selling the show on iTunes. The fact that they make ANY money from the show afterwards is all bonus. Without iTunes, there would be no secondary market for them to sell the shows at all! At .$.99 or $1.99, they have to be shoving that straight into there pockets. Any more and its greed!
Thats true, and I agree with you as a customer.
But from the investor point of view, a market is a market, and content should be priced in a way that is consistent and doesn't cannibalize existing sales. And just because the content is digital, and it costs close to NOTHING to duplicate digital content, it still should be priced consistently with other versions of the same content (DVDs).
This is exactly my problem with this whole thing. The iTunes market is a secondary market for the shows. The Studios make there money from advertising on air broadcasts, not selling the show on iTunes. The fact that they make ANY money from the show afterwards is all bonus. Without iTunes, there would be no secondary market for them to sell the shows at all! At .$.99 or $1.99, they have to be shoving that straight into there pockets. Any more and its greed!
Yes, they make money from advertising, but the value of the advertising goes down when less people start watching the show. If half the audience started buying the show from iTunes instead of watching it on the network, the value of the advertising has just dropped by 50%. Does the profit from iTunes cover that loss in revenue?
It's the same issue the networks have with Tivo and other DVRs (and VCRs). If people record the show and just skip the commericials, that advertising time has no value. Thus no revenue.
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.
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.
Exactly, as noted a few posts earlier:
Quote:
Originally Posted by bg_nyc
Thats interesting! In theory, there should be no such thing as a 'fair price'. If you, as creator or seller of a product, can not afford to sell at a price (because of cost of production), then you will be pushed out of the market. By definition, all market prices are 'fair prices' because they are set by supply and demand forces.
But I'll be the first to admit that there are problems with this model. It assumes that buyers and sellers can enter freely and there is some flexibility to the price. The fact that Apple is setting an inflexible price means that we can't find out whether theres a higher or lower price that would maximize returns for creators and sellers, while not losing significant customers. That price may be 1.75, or it may be 2.39. We don't know. So iTunes is really not allowing the market to develop, which may in the long run hurt customers because content that we may want to see won't show up if creators of content don't think the prices is 'fair'.
But from the investor point of view, a market is a market, and content should be priced in a way that is consistent and doesn't cannibalize existing sales. And just because the content is digital, and it costs close to NOTHING to duplicate digital content, it still should be priced consistently with other versions of the same content (DVDs).
I don't agree with that. If you're buying the shows on-line (like the iTMS), you're getting extra benefits you're not counting with 'other versions'. You can access the shows quicker (rather then the end of the season), convenience (sent right to your computer, no need to go to store, wait for disks to come in), plus extra costs (bandwidth does cost money, why don't people realize this?).
Pricing is the cost of producing a product, plus a profit.
It doesn't work that way because the work has to be parceled out. Maybe a production company can do that, but the studio has to do the work of selling the product and takes on considerable risk in investing in a show. They lose money on some shows, and make it back on others.
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Part of the pricing problem is to quit paying outrageous salaries to all Hollywooder's and Music Talent and lower the price.
I have no idea who a hollywooder is in terms of your context. The big name talent does get a lot, but that's because their name helps make the sale to the public.
The "music talent" generally doesn't get much from music sales. I think that's unfortunate.
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I'm sick of ball bouncers and canary voices making Millions, along with all the production companies. The price of a concert or sport event is way out of line with the average salary.
That's off topic. In a sense, I agree, but I just choose not to go to those events.
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BUT... we must be all desperate, because we keep on paying the price.
There are plenty of other entertainment options. There are good shows that aren't on network/cable/satellite, and the NBA isn't the only way to watch a basket ball game.
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Ol' Steve Jobs has created a fair price structure for a product that has been out of line for a long time and is trying to quell the stealing of artist works. Now the greedy studio's think they have us hooked and want to raise the bar.
Since we don't know what happened in the NBC deal, that comment can easily be way off base. The public posturing might not have anything to do with the actual negotiations.
The extremely biased nature of the value of a television program contrasting the production company's wants and the consumers' desires stipulates that all programs should cost the same, otherwise, you're making the judgement call for someone else on what it is worth to them. That is hogwash, hogwash I say!
I don't know about you, but I find it unfair that one has to pay the same price for last night's episode of Heroes as one does for a 40 year old episode of Adam-12. And I'm pretty sure what brings this out is how little older content is available for sale. New stuff sells now, because people want to stay up-to-date and all, but older stuff is not going to sell at the same prices (and one would think digital distribution would be a boon to selling older content because of the low cost of distributtion).
And what production company's are saying they desire a single-price structure vs. variable pricing? Sure, the consumers say they want it (but they say that because they know they stuff they get now would cost more, so who wouldn't say that).
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Originally Posted by alienzed
I hope youtube succeeds to the extent that all media becomes virtually free. Before television people were social and entertained each other, now we get to pay a faceless entity for mindless ADD relief.
Entertainment is rarely free, and rarely has been. YouTube's not free. People are paying for it (through advertising, just like free TV). But, guess what. If YouTube wins out, there's no more shows on the iTMS, so it doesn't matter anyway.
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Originally Posted by Clalron
Creator of Product -- sets the price retail buys the product for -- retail sets the price the consumer pays for it.
Oh yeah.. that is the value Apple is bringing to the mix--the storefront. You see--that's why Apple can dictate what the price is to the consumer.
Except the retailer is dictating to the producer what they will pay for the show, in order for them to sell it at the price they want. This isn't the way its supposed to work.
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Originally Posted by aegisdesign
They can't. They can issue a suggested retail price of course. They can also set the wholesale price at $5 or $.05 if they so wished. Apple are then free to sell at $1.99 if they wish.
Not necessarily. Action could be taken against anyone for selling at below cost if its deemed as a measure to dump product or harm competition.
P.S. How can the studios realistically complain when selling through the iTunes Store brings in additional revenue they would not be getting if they relied on the methods they used before using the iTunes Store?
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Originally Posted by mopar003
This is exactly my problem with this whole thing. The iTunes market is a secondary market for the shows. The Studios make there money from advertising on air broadcasts, not selling the show on iTunes. The fact that they make ANY money from the show afterwards is all bonus. Without iTunes, there would be no secondary market for them to sell the shows at all! At .$.99 or $1.99, they have to be shoving that straight into there pockets. Any more and its greed!
First off, you make it sound like $1.99 of pure profit is fine, but if they want $2.99, its 'greed'. Isn't wanting anything for it 'greed', since they're wanting money in the first place?
But, secondly, what you all are missing is that you think that TV shows have no value except for their ability to sell advertising. That's not entirely true. They also use shows that already have popularity to draw in viewers to other shows. They'll put some new series behind a popular show, or advertise during the show other shows, to try to get viewership all over. (This, BTW, is the reason they spend so much money on NFL football games. Its not so much that they make it all back in advertising, but it gives them the venue to advertise other shows and get the exposure to it.
This is part of the 'pairing' that was mentioned in the NBC commentary. Buying one show would get you an episode of another show. Even if only 5% of the audience of show A then watches show B, it can boost its ratings enough to warrant keeping it on the air. (You know, the same way when you get a DVD, and it has the "Also available" trailers on it)
I don't agree with that. If you're buying the shows on-line (like the iTMS), you're getting extra benefits you're not counting with 'other versions'. You can access the shows quicker (rather then the end of the season), convenience (sent right to your computer, no need to go to store, wait for disks to come in), plus extra costs (bandwidth does cost money, why don't people realize this?).
What exactly didn't you agree with? You're discussing from the customer point of view... Yes, its a different product from the customer point of view, certaily different from a DVD. And you may be willing to pay a premium for the ability to access content quickly from your computer.
I was talking about the studio point of view. Yes, bandwith costs money, but studios care as much about that as they do about how much it cost to put 15 layers of packaging around a DVD. They are focused on the end price, and whether its competitively priced and allows them a minimum return.
... what you all are missing is that you think that TV shows have no value except for their ability to sell advertising. That's not entirely true. They also use shows that already have popularity to draw in viewers to other shows. They'll put some new series behind a popular show, or advertise during the show other shows, to try to get viewership all over. (This, BTW, is the reason they spend so much money on NFL football games. Its not so much that they make it all back in advertising, but it gives them the venue to advertise other shows and get the exposure to it.
You're missing the fact that studios carefully weigh the benefit of putting an ad for 'Men in Trees' on during NFL games versus the huge sums of money they get from putting a 'GoDaddy.com' commercial on. At the end, they may allocate 5 seconds of each each 5-minute block to self-advertising. When '24' shows a 3-minute add during the superbowl, you can bet theres a hefty transfer price between the '24' advertising budget and NFL Sunday ad revenues. They pay dearly for that space. And remember, they only reason they want people to watch '24' is so they can sell high-priced advertising space there too!
So yes, the ONLY reason TV shows exist for the networks is to sell advertising space. They don't try to increase viewership for the sake of viewership!
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Originally Posted by Louzer
This is part of the 'pairing' that was mentioned in the NBC commentary. Buying one show would get you an episode of another show. Even if only 5% of the audience of show A then watches show B, it can boost its ratings enough to warrant keeping it on the air. (You know, the same way when you get a DVD, and it has the "Also available" trailers on it)
And why do you want to boost ratings? So you can boost the price of advertising space!
if it's not on iTunes, I'll get it for free from somewhere else.
I think for many the inverse applies... "If it's not available free, I'll get it on iTunes." Steve already knows that a minority of content on the average i(insert device name here) was purchased.
I think for many the inverse applies... "If it's not available free, I'll get it on iTunes." Steve already knows that a minority of content on the average i(insert device name here) was purchased.
Good point!
As far as music goes, I know many folks without scruples look at every illegitimate source first. When they exhaust their options, they go the legitimate route, and iTunes is the easy choice. You're right, Jobs knows this. Thats why he wants the record companies to drop DRM. Its pretty useless as a barrier to copyright infringement.
You're missing the fact that studios carefully weigh the benefit of putting an ad for 'Men in Trees' on during NFL games versus the huge sums of money they get from putting a 'GoDaddy.com' commercial on.
Well, for one, I can't imagine them ever putting an ad for a show like Men In Trees on during a football game (24 would be more their style, its all about demographics you know).
Quote:
Originally Posted by bg_nyc
At the end, they may allocate 5 seconds of each each 5-minute block to self-advertising. When '24' shows a 3-minute add during the superbowl, you can bet theres a hefty transfer price between the '24' advertising budget and NFL Sunday ad revenues. They pay dearly for that space. And remember, they only reason they want people to watch '24' is so they can sell high-priced advertising space there too!
Oh, its a lot more then that. Just watch normal TV, and almost every ad block ends in an ad for an upcoming show. Usually in the 30 second to minute frame. And lest we forget the wonderful invention of the in-show advertisement.
Football is a little different, because they have the advantage of lots of dead time (amazing how people talk about football being so much more exciting than 'soccer' when the spurts in football are just so short vs. the huge lag times of just nothingness - which is why they invented instant replay and cheerleaders - to keep men entertained) and can pimp shows also during that "Don't forget to watch a whole new episode of CSI: Deluth, Tuesday, on CBS".
Quote:
Originally Posted by bg_nyc
So yes, the ONLY reason TV shows exist for the networks is to sell advertising space. They don't try to increase viewership for the sake of viewership!
I think some of that's very disengenuous. You don't think some shows get put on, and kept on, because people believe they're actually good shows and worth broadcasting? Yes, they want to sell advertising (otherwise they lose money and go bankrupt). But there are shows that stay on even though the viewership isn't there.
We all know there's many a filmmaker, musical artist, etc, who make niche products. But they make them anyway, because they believe in what they're doing. But they still need someone to finance them to make their 'masterpiece'. Who's doing that? You're TV networks, film studios, record labels (not so much on the last one anymore). And how do they pay for it? Usually through the excessive profits they make off the 'blockbusters' and pop icons.
As far as music goes, I know many folks without scruples look at every illegitimate source first. When they exhaust their options, they go the legitimate route, and iTunes is the easy choice. You're right, Jobs knows this. Thats why he wants the record companies to drop DRM. Its pretty useless as a barrier to copyright infringement.
Why does Jobs' pushing to drop DRM have to do with those who won't buy unless they can't get it anywhere? Apparently I'm too stupid to see the connection you're trying to make.
Oh, its a lot more then that. Just watch normal TV, and almost every ad block ends in an ad for an upcoming show. Usually in the 30 second to minute frame. And lest we forget the wonderful invention of the in-show advertisement.
I knew you would mention that. Those upcoming show ads are usually at the end of a 4-5 minute block of 3rd party commercials, and at the time when space is less valuable (people are on their way from the kitchen or toilet).
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Originally Posted by Louzer
...(amazing how people talk about football being so much more exciting than 'soccer' when the spurts in football are just so short vs. the huge lag times of just nothingness - which is why they invented instant replay and cheerleaders - to keep men entertained) and can pimp shows also during that "Don't forget to watch a whole new episode of CSI: Deluth, Tuesday, on CBS".
That kind of advertising is not sold with 'time slots' and guarantees like 'this will air during a 30-second time out in the 4th quarter'. Its more informal. But i cant disagree with you about the huge time lags of nothingness. Thats why I need to Tivo and step in 45 minutes into the game.
Quote:
Originally Posted by Louzer
I think some of that's very disengenuous. You don't think some shows get put on, and kept on, because people believe they're actually good shows and worth broadcasting? Yes, they want to sell advertising (otherwise they lose money and go bankrupt). But there are shows that stay on even though the viewership isn't there.
We all know there's many a filmmaker, musical artist, etc, who make niche products. But they make them anyway, because they believe in what they're doing. But they still need someone to finance them to make their 'masterpiece'. Who's doing that? You're TV networks, film studios, record labels (not so much on the last one anymore). And how do they pay for it? Usually through the excessive profits they make off the 'blockbusters' and pop icons....
Name one show that stayed on a major network (NBC, CBS, ABC or FOX) for more than 6 episodes that was at the same time getting bad Nielsen ratings. And HBO shows don't count because they are financed by subscription. Films and records are a bit different from TV because they can be made with a reduced budget and marketed carefully to appeal to certain crowds. For example, look at My Greek Wedding. Yes it was a hit, but started out small and marketed as a small independent in just a few theaters.
A TV show on a major network, however, is by definition made to appeal to mainstream. Everyone watches the same networks at the same time. Theres no way to differentiate your viewership and offer different things to different people. Networks would love to have a station full of mass-appeal hits, and will keep searching for the next '24' or 'Lost', and meanwhile cancell perfectly good shows because of lackluster ratings. Dont' you agree that you have seen this?
Thats also why Latino and African American shows can't succeed. Its not always because they are bad shows. Its also because the mainstream doesn't want to see a show about 4 black women (Girlfriends). So it gets relegated to Sunday nights on the CW network (where EVERY show is made to appeal to a specific target demographic). And meanwhile there is not ONE show with multiple (more than 2) African American or Latino cast members on NBC, ABC, or CBS (except maybe Grays Anatomy, which has a Black female head writer).
They can't. They can issue a suggested retail price of course. They can also set the wholesale price at $5 or $.05 if they so wished. Apple are then free to sell at $1.99 if they wish.
They can, actually -- at least insofar as antitrust law is concerned. The Supreme Court this past term overruled a line of cases that had prohibited manufacturers from dictating prices to retailers.
This is all contractual. Apple and FOX can agree to charge or package content anyway they want to. If they don't agree, then no FOX content on iTunes. If they do agree, then the content is available on terms mutually acceptable to Apple and FOX. Simple as that.
Why does Jobs' pushing to drop DRM have to do with those who won't buy unless they can't get it anywhere? Apparently I'm too stupid to see the connection you're trying to make.
Well, my point was that DRM doesn't stop unauthorized duplication. Like I said, Jobs was pushing companies to drop it because it is worthless, and management of Apple's Fairplay DRM system is more headaches than its worth. And, some people use iTunes as a last resort. maybe without DRM they can sell a bit more.
Well, my point was that DRM doesn't stop unauthorized duplication. Like I said, Jobs was pushing companies to drop it because it is worthless, and management of Apple's Fairplay DRM system is more headaches than its worth. And, some people use iTunes as a last resort. maybe without DRM they can sell a bit more.
You forget to mention that the proprietary DRM that Apple uses leaves them open to Anti-Trust litigation due to the closed system that they have with iTMS, iTunes, and iPod/iPhone/AppleTV. There has already been some attempts at it in Europe and as Apple's position in retail music and now video increases they will have to do something to limit the chances of that litigation. The lack of DRM is the simplest way for them to do this and keeps them from having to open up the iTunes software to other MP3 players or music retailers, or iTMS to other iTunes type media management software or developing a web only store for iTMS.
Comments
This is exactly my problem with this whole thing. The iTunes market is a secondary market for the shows. The Studios make there money from advertising on air broadcasts, not selling the show on iTunes. The fact that they make ANY money from the show afterwards is all bonus. Without iTunes, there would be no secondary market for them to sell the shows at all! At .$.99 or $1.99, they have to be shoving that straight into there pockets. Any more and its greed!
Thats true, and I agree with you as a customer.
But from the investor point of view, a market is a market, and content should be priced in a way that is consistent and doesn't cannibalize existing sales. And just because the content is digital, and it costs close to NOTHING to duplicate digital content, it still should be priced consistently with other versions of the same content (DVDs).
This is exactly my problem with this whole thing. The iTunes market is a secondary market for the shows. The Studios make there money from advertising on air broadcasts, not selling the show on iTunes. The fact that they make ANY money from the show afterwards is all bonus. Without iTunes, there would be no secondary market for them to sell the shows at all! At .$.99 or $1.99, they have to be shoving that straight into there pockets. Any more and its greed!
Yes, they make money from advertising, but the value of the advertising goes down when less people start watching the show. If half the audience started buying the show from iTunes instead of watching it on the network, the value of the advertising has just dropped by 50%. Does the profit from iTunes cover that loss in revenue?
It's the same issue the networks have with Tivo and other DVRs (and VCRs). If people record the show and just skip the commericials, that advertising time has no value. Thus no revenue.
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.
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.
Exactly, as noted a few posts earlier:
Thats interesting! In theory, there should be no such thing as a 'fair price'. If you, as creator or seller of a product, can not afford to sell at a price (because of cost of production), then you will be pushed out of the market. By definition, all market prices are 'fair prices' because they are set by supply and demand forces.
But I'll be the first to admit that there are problems with this model. It assumes that buyers and sellers can enter freely and there is some flexibility to the price. The fact that Apple is setting an inflexible price means that we can't find out whether theres a higher or lower price that would maximize returns for creators and sellers, while not losing significant customers. That price may be 1.75, or it may be 2.39. We don't know. So iTunes is really not allowing the market to develop, which may in the long run hurt customers because content that we may want to see won't show up if creators of content don't think the prices is 'fair'.
Thats true, and I agree with you as a customer.
But from the investor point of view, a market is a market, and content should be priced in a way that is consistent and doesn't cannibalize existing sales. And just because the content is digital, and it costs close to NOTHING to duplicate digital content, it still should be priced consistently with other versions of the same content (DVDs).
I don't agree with that. If you're buying the shows on-line (like the iTMS), you're getting extra benefits you're not counting with 'other versions'. You can access the shows quicker (rather then the end of the season), convenience (sent right to your computer, no need to go to store, wait for disks to come in), plus extra costs (bandwidth does cost money, why don't people realize this?).
Pricing is the cost of producing a product, plus a profit.
It doesn't work that way because the work has to be parceled out. Maybe a production company can do that, but the studio has to do the work of selling the product and takes on considerable risk in investing in a show. They lose money on some shows, and make it back on others.
Part of the pricing problem is to quit paying outrageous salaries to all Hollywooder's and Music Talent and lower the price.
I have no idea who a hollywooder is in terms of your context. The big name talent does get a lot, but that's because their name helps make the sale to the public.
The "music talent" generally doesn't get much from music sales. I think that's unfortunate.
I'm sick of ball bouncers and canary voices making Millions, along with all the production companies. The price of a concert or sport event is way out of line with the average salary.
That's off topic. In a sense, I agree, but I just choose not to go to those events.
BUT... we must be all desperate, because we keep on paying the price.
There are plenty of other entertainment options. There are good shows that aren't on network/cable/satellite, and the NBA isn't the only way to watch a basket ball game.
Ol' Steve Jobs has created a fair price structure for a product that has been out of line for a long time and is trying to quell the stealing of artist works. Now the greedy studio's think they have us hooked and want to raise the bar.
Since we don't know what happened in the NBC deal, that comment can easily be way off base. The public posturing might not have anything to do with the actual negotiations.
The extremely biased nature of the value of a television program contrasting the production company's wants and the consumers' desires stipulates that all programs should cost the same, otherwise, you're making the judgement call for someone else on what it is worth to them. That is hogwash, hogwash I say!
I don't know about you, but I find it unfair that one has to pay the same price for last night's episode of Heroes as one does for a 40 year old episode of Adam-12. And I'm pretty sure what brings this out is how little older content is available for sale. New stuff sells now, because people want to stay up-to-date and all, but older stuff is not going to sell at the same prices (and one would think digital distribution would be a boon to selling older content because of the low cost of distributtion).
And what production company's are saying they desire a single-price structure vs. variable pricing? Sure, the consumers say they want it (but they say that because they know they stuff they get now would cost more, so who wouldn't say that).
I hope youtube succeeds to the extent that all media becomes virtually free. Before television people were social and entertained each other, now we get to pay a faceless entity for mindless ADD relief.
Entertainment is rarely free, and rarely has been. YouTube's not free. People are paying for it (through advertising, just like free TV). But, guess what. If YouTube wins out, there's no more shows on the iTMS, so it doesn't matter anyway.
Creator of Product -- sets the price retail buys the product for -- retail sets the price the consumer pays for it.
Oh yeah.. that is the value Apple is bringing to the mix--the storefront. You see--that's why Apple can dictate what the price is to the consumer.
Except the retailer is dictating to the producer what they will pay for the show, in order for them to sell it at the price they want. This isn't the way its supposed to work.
They can't. They can issue a suggested retail price of course. They can also set the wholesale price at $5 or $.05 if they so wished. Apple are then free to sell at $1.99 if they wish.
Not necessarily. Action could be taken against anyone for selling at below cost if its deemed as a measure to dump product or harm competition.
P.S. How can the studios realistically complain when selling through the iTunes Store brings in additional revenue they would not be getting if they relied on the methods they used before using the iTunes Store?
This is exactly my problem with this whole thing. The iTunes market is a secondary market for the shows. The Studios make there money from advertising on air broadcasts, not selling the show on iTunes. The fact that they make ANY money from the show afterwards is all bonus. Without iTunes, there would be no secondary market for them to sell the shows at all! At .$.99 or $1.99, they have to be shoving that straight into there pockets. Any more and its greed!
First off, you make it sound like $1.99 of pure profit is fine, but if they want $2.99, its 'greed'. Isn't wanting anything for it 'greed', since they're wanting money in the first place?
But, secondly, what you all are missing is that you think that TV shows have no value except for their ability to sell advertising. That's not entirely true. They also use shows that already have popularity to draw in viewers to other shows. They'll put some new series behind a popular show, or advertise during the show other shows, to try to get viewership all over. (This, BTW, is the reason they spend so much money on NFL football games. Its not so much that they make it all back in advertising, but it gives them the venue to advertise other shows and get the exposure to it.
This is part of the 'pairing' that was mentioned in the NBC commentary. Buying one show would get you an episode of another show. Even if only 5% of the audience of show A then watches show B, it can boost its ratings enough to warrant keeping it on the air. (You know, the same way when you get a DVD, and it has the "Also available" trailers on it)
I don't agree with that. If you're buying the shows on-line (like the iTMS), you're getting extra benefits you're not counting with 'other versions'. You can access the shows quicker (rather then the end of the season), convenience (sent right to your computer, no need to go to store, wait for disks to come in), plus extra costs (bandwidth does cost money, why don't people realize this?).
What exactly didn't you agree with? You're discussing from the customer point of view... Yes, its a different product from the customer point of view, certaily different from a DVD. And you may be willing to pay a premium for the ability to access content quickly from your computer.
I was talking about the studio point of view. Yes, bandwith costs money, but studios care as much about that as they do about how much it cost to put 15 layers of packaging around a DVD. They are focused on the end price, and whether its competitively priced and allows them a minimum return.
... what you all are missing is that you think that TV shows have no value except for their ability to sell advertising. That's not entirely true. They also use shows that already have popularity to draw in viewers to other shows. They'll put some new series behind a popular show, or advertise during the show other shows, to try to get viewership all over. (This, BTW, is the reason they spend so much money on NFL football games. Its not so much that they make it all back in advertising, but it gives them the venue to advertise other shows and get the exposure to it.
You're missing the fact that studios carefully weigh the benefit of putting an ad for 'Men in Trees' on during NFL games versus the huge sums of money they get from putting a 'GoDaddy.com' commercial on. At the end, they may allocate 5 seconds of each each 5-minute block to self-advertising. When '24' shows a 3-minute add during the superbowl, you can bet theres a hefty transfer price between the '24' advertising budget and NFL Sunday ad revenues. They pay dearly for that space. And remember, they only reason they want people to watch '24' is so they can sell high-priced advertising space there too!
So yes, the ONLY reason TV shows exist for the networks is to sell advertising space. They don't try to increase viewership for the sake of viewership!
This is part of the 'pairing' that was mentioned in the NBC commentary. Buying one show would get you an episode of another show. Even if only 5% of the audience of show A then watches show B, it can boost its ratings enough to warrant keeping it on the air. (You know, the same way when you get a DVD, and it has the "Also available" trailers on it)
And why do you want to boost ratings? So you can boost the price of advertising space!
if it's not on iTunes, I'll get it for free from somewhere else.
I think for many the inverse applies... "If it's not available free, I'll get it on iTunes." Steve already knows that a minority of content on the average i(insert device name here) was purchased.
I think for many the inverse applies... "If it's not available free, I'll get it on iTunes." Steve already knows that a minority of content on the average i(insert device name here) was purchased.
Good point!
As far as music goes, I know many folks without scruples look at every illegitimate source first. When they exhaust their options, they go the legitimate route, and iTunes is the easy choice. You're right, Jobs knows this. Thats why he wants the record companies to drop DRM. Its pretty useless as a barrier to copyright infringement.
You're missing the fact that studios carefully weigh the benefit of putting an ad for 'Men in Trees' on during NFL games versus the huge sums of money they get from putting a 'GoDaddy.com' commercial on.
Well, for one, I can't imagine them ever putting an ad for a show like Men In Trees on during a football game (24 would be more their style, its all about demographics you know).
At the end, they may allocate 5 seconds of each each 5-minute block to self-advertising. When '24' shows a 3-minute add during the superbowl, you can bet theres a hefty transfer price between the '24' advertising budget and NFL Sunday ad revenues. They pay dearly for that space. And remember, they only reason they want people to watch '24' is so they can sell high-priced advertising space there too!
Oh, its a lot more then that. Just watch normal TV, and almost every ad block ends in an ad for an upcoming show. Usually in the 30 second to minute frame. And lest we forget the wonderful invention of the in-show advertisement.
Football is a little different, because they have the advantage of lots of dead time (amazing how people talk about football being so much more exciting than 'soccer' when the spurts in football are just so short vs. the huge lag times of just nothingness - which is why they invented instant replay and cheerleaders - to keep men entertained) and can pimp shows also during that "Don't forget to watch a whole new episode of CSI: Deluth, Tuesday, on CBS".
So yes, the ONLY reason TV shows exist for the networks is to sell advertising space. They don't try to increase viewership for the sake of viewership!
I think some of that's very disengenuous. You don't think some shows get put on, and kept on, because people believe they're actually good shows and worth broadcasting? Yes, they want to sell advertising (otherwise they lose money and go bankrupt). But there are shows that stay on even though the viewership isn't there.
We all know there's many a filmmaker, musical artist, etc, who make niche products. But they make them anyway, because they believe in what they're doing. But they still need someone to finance them to make their 'masterpiece'. Who's doing that? You're TV networks, film studios, record labels (not so much on the last one anymore). And how do they pay for it? Usually through the excessive profits they make off the 'blockbusters' and pop icons.
Good point!
As far as music goes, I know many folks without scruples look at every illegitimate source first. When they exhaust their options, they go the legitimate route, and iTunes is the easy choice. You're right, Jobs knows this. Thats why he wants the record companies to drop DRM. Its pretty useless as a barrier to copyright infringement.
Why does Jobs' pushing to drop DRM have to do with those who won't buy unless they can't get it anywhere? Apparently I'm too stupid to see the connection you're trying to make.
Oh, its a lot more then that. Just watch normal TV, and almost every ad block ends in an ad for an upcoming show. Usually in the 30 second to minute frame. And lest we forget the wonderful invention of the in-show advertisement.
I knew you would mention that. Those upcoming show ads are usually at the end of a 4-5 minute block of 3rd party commercials, and at the time when space is less valuable (people are on their way from the kitchen or toilet).
...(amazing how people talk about football being so much more exciting than 'soccer' when the spurts in football are just so short vs. the huge lag times of just nothingness - which is why they invented instant replay and cheerleaders - to keep men entertained) and can pimp shows also during that "Don't forget to watch a whole new episode of CSI: Deluth, Tuesday, on CBS".
That kind of advertising is not sold with 'time slots' and guarantees like 'this will air during a 30-second time out in the 4th quarter'. Its more informal. But i cant disagree with you about the huge time lags of nothingness. Thats why I need to Tivo and step in 45 minutes into the game.
I think some of that's very disengenuous. You don't think some shows get put on, and kept on, because people believe they're actually good shows and worth broadcasting? Yes, they want to sell advertising (otherwise they lose money and go bankrupt). But there are shows that stay on even though the viewership isn't there.
We all know there's many a filmmaker, musical artist, etc, who make niche products. But they make them anyway, because they believe in what they're doing. But they still need someone to finance them to make their 'masterpiece'. Who's doing that? You're TV networks, film studios, record labels (not so much on the last one anymore). And how do they pay for it? Usually through the excessive profits they make off the 'blockbusters' and pop icons....
Name one show that stayed on a major network (NBC, CBS, ABC or FOX) for more than 6 episodes that was at the same time getting bad Nielsen ratings. And HBO shows don't count because they are financed by subscription. Films and records are a bit different from TV because they can be made with a reduced budget and marketed carefully to appeal to certain crowds. For example, look at My Greek Wedding. Yes it was a hit, but started out small and marketed as a small independent in just a few theaters.
A TV show on a major network, however, is by definition made to appeal to mainstream. Everyone watches the same networks at the same time. Theres no way to differentiate your viewership and offer different things to different people. Networks would love to have a station full of mass-appeal hits, and will keep searching for the next '24' or 'Lost', and meanwhile cancell perfectly good shows because of lackluster ratings. Dont' you agree that you have seen this?
Thats also why Latino and African American shows can't succeed. Its not always because they are bad shows. Its also because the mainstream doesn't want to see a show about 4 black women (Girlfriends). So it gets relegated to Sunday nights on the CW network (where EVERY show is made to appeal to a specific target demographic). And meanwhile there is not ONE show with multiple (more than 2) African American or Latino cast members on NBC, ABC, or CBS (except maybe Grays Anatomy, which has a Black female head writer).
if it's not on iTunes, I'll get it for free from somewhere else.
yes and seeing that we cant get movies here in Canada WE will TO'RENT
until iTunes come.
sorry nbs/fox /abc and the others
They can't. They can issue a suggested retail price of course. They can also set the wholesale price at $5 or $.05 if they so wished. Apple are then free to sell at $1.99 if they wish.
They can, actually -- at least insofar as antitrust law is concerned. The Supreme Court this past term overruled a line of cases that had prohibited manufacturers from dictating prices to retailers.
This is all contractual. Apple and FOX can agree to charge or package content anyway they want to. If they don't agree, then no FOX content on iTunes. If they do agree, then the content is available on terms mutually acceptable to Apple and FOX. Simple as that.
Why does Jobs' pushing to drop DRM have to do with those who won't buy unless they can't get it anywhere? Apparently I'm too stupid to see the connection you're trying to make.
Well, my point was that DRM doesn't stop unauthorized duplication. Like I said, Jobs was pushing companies to drop it because it is worthless, and management of Apple's Fairplay DRM system is more headaches than its worth. And, some people use iTunes as a last resort. maybe without DRM they can sell a bit more.
Well, my point was that DRM doesn't stop unauthorized duplication. Like I said, Jobs was pushing companies to drop it because it is worthless, and management of Apple's Fairplay DRM system is more headaches than its worth. And, some people use iTunes as a last resort. maybe without DRM they can sell a bit more.
You forget to mention that the proprietary DRM that Apple uses leaves them open to Anti-Trust litigation due to the closed system that they have with iTMS, iTunes, and iPod/iPhone/AppleTV. There has already been some attempts at it in Europe and as Apple's position in retail music and now video increases they will have to do something to limit the chances of that litigation. The lack of DRM is the simplest way for them to do this and keeps them from having to open up the iTunes software to other MP3 players or music retailers, or iTMS to other iTunes type media management software or developing a web only store for iTMS.