January 27, 2007

What is the True Value of an Entertainment Download?

Hollywood and the big media music and television moguls are struggling to determine how to price their entertainment offerings in a new technology landscape. As consumers, we have more flexibility than ever to obtain music, TV or video from more sources than ever, including TiVo, NetFlix, iTunes, YouTube and other less legal methods. As such, we have the power to realign our expectations for what we are willing to pay, rather than sitting as victims to what are often monopoly-seeking businesspeople.

Approximately four years ago, the music industry was being eaten alive by illegal peer to peer music file sharing. In April of 2003, Apple introduced the iTunes Music Store, and established a legal way for customers to download music, inexpensively, setting a pricing model of 99 cents per track, and typically, $9.99 per album, pricepoints which closely mirror those by nearly all other online music labels to date. While these prices were less expensive than one would expect to pay in a music retail store like Sam Goody or Tower Records, it was, for the music industry, a much-appreciated alternative to free, and the record labels had a new partner who encouraged customers to not steal music. Now, Apple has successfully sold more than 2 billion tracks, and appearing on iTunes is a must for artists - established or otherwise.

Later, Apple added the ability to sell television shows through the store, establishing a price of $1.99 per episode. Season passes, downloading every copy of the show for a full season, ranged much higher, sometimes on the order of $30 or $40. While only ABC had joined on initially, other networks followed suit, meaning I can now download current or back episodes for everything from South Park to Fox's 24, or Law and Order.

Now, this introduction was truly a new wrinkle. Consumers with TiVos or even a simple VCR have had the ability to record shows without charge since the advent of those technologies - and most still watch the shows as they are aired, commercials and all. Now, Apple and the networks are trying to establish the value of a television show where free was the original price, clearly harder to do. If I instead have the option to set up a season pass for a show on TiVo, I can do that for free, and skip iTunes, saving me money.

Meanwhile, back in the analog world, watching a feature film in a theater can cost anywhere from $7 to $10 and up per ticket, depending on where you live, what time you go, and how long the film has been in theaters. Whether the movie is 80 minutes, like Borat, or a 3-hour Titanic or Dances With Wolves marathon, the price is the same, so you're not paying by the minute, or for the actors' time. Instead, you're paying to cover the actors' contracts and the film's marketing costs. Outside of the Internet, the price to attend movies in a theater has remained fairly inelastic over time, increasing only with inflation. As a result, consumers don't often shop around to choose the theater with the best price, instead going with the theater that offers the closest location, or is showing the movie you'd like to see at a time you'd like to see it.

And this leads us back to the iTunes store. In 2006, Apple added feature films like Pirates of the Carribean and Cars, to their media library. Again, they've tried to implement standard pricing, from $9.99 for established films to $14.99 for new releases. Now, instead of the $7-10 or more per ticket to see the film in a theater, you have the option to buy the film to own, to watch on your laptop, in most cases, and soon, with Apple TV, you can project it to the flat-screen, effectively bringing the movie experience to your home.

All that said, music and TV shows and films are very different beasts. A music track you purchase from iTunes can be played again and again, as people don't tire of music as rapidly as they do visual media. Some of my most frequently listened-to tracks have been heard a few dozen times each, and others, much less. Television shows are typically watched a single time, and then deleted (from TiVo or your computer). If it's a rerun, the value of the show has greatly diminished. Meanwhile, feature films are almost strictly a once and done affair - unless you have the feeling of guilt for purchasing something and watch it again to justify the cost. it takes a rare feature film to get me to see it in the theater more than once, and DVDs I've received as gifts often make their way back into the dusty bin of our entertainment center. This once and done mentality is why our society gravitates toward renting DVDs from NetFlix and BlockBuster instead of buying them, and why feature films eventually leave theaters altogether - no matter how good the film. The audience that saw them once probably isn't coming back.

Looking back at iTunes, this means that while downloaded songs are the cheapest commodity, they are also the most-often enjoyed, while the higher you go up the price charts, to richer media, the fewer times you are going to typically enjoy the purchase. While you could make the argument that an iTunes song is shorter in minutes than a TV show or a movie, and you would be right, the value you receive from each download is greater. If my favorite song is 6 minutes long, and I've listened to it 20 times, I've received a perceived 120 minutes of value from it for 99 cents. In comparison, a downloaded CSI episode for $1.99 only would 40 or so minutes, without commercials, and costs twice as much. I would have to watch it more than four times to receive the equivalent minutes of enjoyment per dollar spent. And even if you move the spot on the graph to say I only listened to that iTunes track 10 times, for sixty minutes of entertainment at $.99, I would still need to see Gil Grissom examine the corpse three or more times before I've reached a similar return on investment, for my $1.99.

So while I can gain 120 minutes of entertainment from a single iTunes track, heard 20 times, those same 120 minutes of entertainment, in the form of a feature film, will cost you at least $9.99. Additionally, a lot of movies are getting shorter and shorter. The aforementioned Borat would be almost halfway through its second showing by the time you reached the two hour mark.

This tells me that the market for paid movie downloads will remain much smaller than that for music, unless costs decrease. Consumers will almost always select the cheapest way to a goal. If the perceived value of a TV show or a movie is not significantly more than that of a song, consumers will shy away from the significantly higher prices needed to buy films and TV online, even if the entertainment media moguls try to convince us that the actual value is higher. This will drive consumers to illegally download entire films for free rather than pay iTunes or other services, until the disconnect between actual and perceived values is closed. While there are free legal alternatives for television shows (via basic TV), and music has decreased in price such that the draw for peer to peer networks has lessened, it is my feeling that the price of feature films has not come down significantly enough to encourage today's consumers to purchase them with the frequency they do music. It's not just a matter of consumers needing highest speed broadband to get the files. It's return on investment.

3 comments:

  1. You're missing a couple of important factors.

    First off, you don't take a date to a movie because you want to see the movie. You take the date to the movie so you can be together, alone, without having to eat, without drowning in coffee, without any pressure to climb into bed. That's why you see so many people showing up, not deciding what to watch until they get there - and the start time will be a factor.

    People don't buy a movie on VHS or DVD because they want to see it over and over again; they buy a movie because they want to see it now, when their friends and coworkers are discussing it, rather than in six months or a year, when aren't. That's why sales drop off quickly a month after it goes on sale. It's not that people don't want to see it, but that people don't want in on the conversations.

    Music is different. You don't spend 63 minutes listening to a new album. You spend 63 minutes washing the dishes, driving to work, doing homework, mowing the lawn, playing poker or writing a computer program while the music plays. It doesn't consume time, it decorates it.

    And your price-per-pound is way off, too.

    I saw a 7-minute film on eating breakfast in IFC the other day. It'd make a good cellphone download. You could show it to your friend, and he would download it to his phone to show his wife. If a Hallmark card is worth $2, then this clip was worth the same. On the other hand, I spend three months of my life one snowy evening, watching "Barry Lyndon" at a theatre. They'd have to pay me well to download and watch THAT turkey again.

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  2. I agree that it is just utterly ridiculous to pay $10 and up for a downloaded movie that you can't even burn onto a DVD! I would dispute that you really own this movie. You have possession of it only as long as you are willing to allocate hard drive space to it and eventually (unless you pay a fortune for storage) you will have to delete it to make room for a newer movie you want to see.

    And what if you pay for a lot of storage but the hard drive fails? You have no backup and you are out of luck once again. All I can say is that those people who are downloading are rich or foolish.

    I look at a download as a rental which you can keep for a long time and not pay a late fee. Wow, sounds a lot like Netflix which is far cheaper per movie!

    So irregardless of whether you want to watch a movie more than once, it just doesn't make any sense to me. Price it at $4.00 and I might go for it.

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  3. In reference to both this article as well as How Apple could crush Netflix, I see some valid points in your ideas (i myself have expressed similar ones).

    I, however, feel you miss out on one notion. While you may have a lower shelf value for video content, some of us out there retain a much larger span. I for one, find a great number of video content that i wish to retain, not only for my personal sake, but to share with others. I believe in having the flexibility to do that, and without it (ie. if videos had a life cycle, 2 watches and they go away) i wouldn't be too thrilled. That's why i proposed having an unlimited amount of "rental" time with the compliance of having only 3 at a time, and obvious monthly payment.

    I agree a lot with the first comment, it's not just about the content, a lot of it has to do with the experience as well...thats where the industry is struggling with right now..

    http://dot-thought.blogspot.com/

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