The Video iPod, Part I: ABC wakes from coma, and is slowly realizing that it's not 1985
As anyone who follows technology will know by now, Apple announced its video iPods yesterday (Wednesday, October 12, 2005). This was an inevitable development, seeing as how Steve Jobs spent the last few years dismissing the idea of watching video on a 2.5" screen. Judging by his even more vehement opposition to an Apple iPhone and an Apple Tablet computer, I think we can expect both of those products shortly.
There's not much to say about the new iPods; they're basically the existing color-sceen iPods, except they, uh, play video (the older color models can also play video, but this ability was not present in the iPod software. It'd be a cool Christmas present to Apple fans to enable video on older iPods on December 25, 2005). They do have a slightly higher-resolution screen than the older color iPods, but the hard drive sizes are unchanged, so if you mostly play music on your iPod they won't seem any different than the older models.
But the real news from today's event is that Apple has teamed with Disney/ABC to allow downloading of two ABC television shows (Lost and Desperate Housewives) for $1.99 an episode to play on the new video iPod. Where did they get the $1.99 number? I imagine they simply looked at what a TV show costs on DVD (about $2 an episode) and used that price. Whether consumers will pay the same amount for a downloaded (and very low-resolution - only 320x240) show as they'd pay on DVD remains to be seen. I think this price point will work. While it's higher than I'd be willing to pay for Cheers as a download (why not just buy the DVD and rip it to your iPod?), the fact that TV shows will be available for download right after they air will be compelling for a consumer that is following the plot of Lost and wants to watch last night's episode on the train on the way to work.
This is something (selling TV shows on iTunes) that I have been advocating for at least a year. The economics of broadcast TV (ABC, CBS, NBC, and Fox) are not very good, and selling these shows online could be to TV what the DVD was to the movie business - a significant source of revenue that one day eclipses revenue from the "original" revenue stream (ticket sales in the case of movies, broadcast advertising in the case of TV).
Let's look at the economics of selling TV on iTunes. A hit show like Lost has about 17 minutes of commercials per hour, selling for about $500,000 per 30 second spot. Thus, ABC gets about $17m in revenue from showing Lost on a Wednesday night at 8:00 PM (Central Time).
At $1.99 per episode, it won't take very many iTunes viewers to make iTunes TV sales a significant revenue source for ABC. I see no reason why a year from now (Apple sells 10m iPods per quarter) a hit show wouldn't have millions of downloads every week, with iTunes revenues equal to 10-20% of ad revenues.
And that's the worse-case scenario, in a way. When Friends was in its heyday, it garnered about $400,000 per 30 second spot, but ran for only a half-hour. With less than $7m in revenue every week, NBC made very little profit on the show (the six stars alone made more than $7m in salary every week, and that's not counting the actual costs of filming and writing the show), but they kept airing it because they wanted to be the "#1 Network on TV". With 1-2 million downloads a week of Friends at $1.00-$2.00 a pop, the economics would have changed dramatically for NBC.
For "cult" shows like Battlestar Gallactica and Arrested Development (neither of which are currently available for download), iTunes download revenue may in fact exceed the revenue from advertising. I'd pay $0.50 an episode for The Daily Show with Jon Stewart. The cost of producing a TV show is only loosely related to its popularity (and ad revenue) - thus, for smaller networks the economics of high-quality TV shows are even worse than they are for ER (NBC) or Lost (ABC).
My prediction? This will go very well for ABC, soon the rest of the TV networks will pile on, and downloading TV to your computer (and iPod) will become commonplace. Next up? Feature films. The only thing that will derail this gravy train will be greed on the part of network and studio executives - they may be able to get $1.99 for new episodes of Lost, but when I go to download an episode of The Rockford Files, it better be $0.49.
There's not much to say about the new iPods; they're basically the existing color-sceen iPods, except they, uh, play video (the older color models can also play video, but this ability was not present in the iPod software. It'd be a cool Christmas present to Apple fans to enable video on older iPods on December 25, 2005). They do have a slightly higher-resolution screen than the older color iPods, but the hard drive sizes are unchanged, so if you mostly play music on your iPod they won't seem any different than the older models.
But the real news from today's event is that Apple has teamed with Disney/ABC to allow downloading of two ABC television shows (Lost and Desperate Housewives) for $1.99 an episode to play on the new video iPod. Where did they get the $1.99 number? I imagine they simply looked at what a TV show costs on DVD (about $2 an episode) and used that price. Whether consumers will pay the same amount for a downloaded (and very low-resolution - only 320x240) show as they'd pay on DVD remains to be seen. I think this price point will work. While it's higher than I'd be willing to pay for Cheers as a download (why not just buy the DVD and rip it to your iPod?), the fact that TV shows will be available for download right after they air will be compelling for a consumer that is following the plot of Lost and wants to watch last night's episode on the train on the way to work.
This is something (selling TV shows on iTunes) that I have been advocating for at least a year. The economics of broadcast TV (ABC, CBS, NBC, and Fox) are not very good, and selling these shows online could be to TV what the DVD was to the movie business - a significant source of revenue that one day eclipses revenue from the "original" revenue stream (ticket sales in the case of movies, broadcast advertising in the case of TV).
Let's look at the economics of selling TV on iTunes. A hit show like Lost has about 17 minutes of commercials per hour, selling for about $500,000 per 30 second spot. Thus, ABC gets about $17m in revenue from showing Lost on a Wednesday night at 8:00 PM (Central Time).
At $1.99 per episode, it won't take very many iTunes viewers to make iTunes TV sales a significant revenue source for ABC. I see no reason why a year from now (Apple sells 10m iPods per quarter) a hit show wouldn't have millions of downloads every week, with iTunes revenues equal to 10-20% of ad revenues.
And that's the worse-case scenario, in a way. When Friends was in its heyday, it garnered about $400,000 per 30 second spot, but ran for only a half-hour. With less than $7m in revenue every week, NBC made very little profit on the show (the six stars alone made more than $7m in salary every week, and that's not counting the actual costs of filming and writing the show), but they kept airing it because they wanted to be the "#1 Network on TV". With 1-2 million downloads a week of Friends at $1.00-$2.00 a pop, the economics would have changed dramatically for NBC.
For "cult" shows like Battlestar Gallactica and Arrested Development (neither of which are currently available for download), iTunes download revenue may in fact exceed the revenue from advertising. I'd pay $0.50 an episode for The Daily Show with Jon Stewart. The cost of producing a TV show is only loosely related to its popularity (and ad revenue) - thus, for smaller networks the economics of high-quality TV shows are even worse than they are for ER (NBC) or Lost (ABC).
My prediction? This will go very well for ABC, soon the rest of the TV networks will pile on, and downloading TV to your computer (and iPod) will become commonplace. Next up? Feature films. The only thing that will derail this gravy train will be greed on the part of network and studio executives - they may be able to get $1.99 for new episodes of Lost, but when I go to download an episode of The Rockford Files, it better be $0.49.
1 Comments:
I have downloaded the first season of 'Lost'. The picture quality is very good - I don't have a Video iPod so I watched the video full screen on my 12".
I think I will definitely be buying a Video iPod and probably also be buying and downloading TV shows. I know the prices are the same almost but $2.00 a week still seems more affordable than $40 or $50 in one shot for the DVD. Plus the download is obviously more current.
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