inconsequence

Can guess the source of the screen image?

According to this article in AllThingsD, Apple is pitching the idea of subscription-based TV via iTunes to content producers. I’m assuming the idea is “pay $30/month and see as much stuff on iTunes as you like”. I further assume that Apple’s business model will remain “we make money on hardware, you make money on content” (i.e. 30% for Apple to cover costs, 70% to … someone … for content). I’m certainly no expert, but from my random readings on the subject, Apple’s deals generally favor content-producers to a staggering degree compared to pretty much anyone else. (Amazon, purportedly, takes 70% of eBook revenues from the Kindle, which is quite a lot given the pretty much total lack of added value on their part. Similarly, Cable TV companies pay only a tiny fraction of subscriber fees to content producers.)

The main thing preventing iTunes from being the best deal for TV as things stand (aside from piracy, of course) is the lack of content. Only two-thirds of the TV shows I’d want to watch are available via iTunes, and many of those are available for free (with ads) from Hulu. The cost of buying all the TV shows I’d like to watch and/or buy each month (that aren’t available for free on Hulu or elsewhere) is significantly lower than the cost of digital cable (but not basic analog) if they were available.

$30/month is the same as the cost of 15 TV episodes on iTunes (or 10 HD episodes). A lot of people would do the arithmetic and figure — OK which episodes will I end up buying on DVD or similar? If you’re like me and end up buying about five seasons of TV per year ($150-250) and would be just as happy to have a digital copy (I, for one, would prefer to give up on DVDs which are fragile and easy to misplace) then you can figure in another $15-20/month. Who has time to watch 17-25 episodes of TV each month? TV via iTunes is already competitive with broadcast/cable/DVD in terms of price to viewers and, I suspect, return to content producers, but the question is whether everything you want to watch is available.

And the real problem is that if you want a good broadband connection in the US, you’re basically stuck with cable or DSL, both of which come bundled with TV in some way or another. So Apple has two problems — making more content available and overcoming the bundling of legacy TV content with broadband.

HBO’s stuff is going to appear on iTunes. So far, I only see the first seasons of the shows I’m interested in (Rome, Deadwood, and most of all The Wire) but I assume it won’t be long.

The first thing a lot of folks latched onto was Apple being “forced” to be flexible on pricing by making some of the shows $2.99. Since most HBO shows don’t have ad breaks, and sometimes don’t even fit inside an hour, and are made to higher standards than typical network TV shows, this is hardly unreasonable. Two episodes of The Wire equals three episodes of Law & Order. Fair enough.

It’s worth noting that it’s $1.99 for some pretty short format stuff on iTunes, and that many super-long music tracks are “album only” in the music section. So this doesn’t seem, to me, to be comparable to Apple caving to HBO where it didn’t cave to NBC.

Oh yeah, and Cable TV: I think your number is up.

P.S.

By the way, here’s a letter by David Simon to fans of The Wire after wrapping up the final season. It’s a rather depressing commentary on the state of US society and politics.

One of the best things iTunes Store has going for it is usability, but the Movie Rentals section (which, basically, doesn’t exist) is simply broken. The categories don’t let you filter for rentable movies, so (as of writing) it’s almost impossible to find movies to rent unless you just choose popular picks or new releases.

Next, the iTunes Store suffers a major weakness relative to Netflix which isn’t so apparent when shopping for music, but is horrible when looking at movies. Here’s a clue: Coyote Ugly is rated 4.5 stars, and the only reason it’s 4.5 and not 5 is that a few people are annoyed at the nudity in the unrated version (which seems a bit like complaining a nature documentary is full of animals). Meanwhile, “An Inconvenient Truth” is rated 2.5 stars owing to a huge number of 1 star reviews from, basically, insane people. (Rating it 1 star doesn’t make you insane, saying that the scientists quoted in the film have been disowned by the majority of the scientific community and the claims have been disproven by NASA does.)

Basically, the movie reviews are of similar quality to the reviews on YouTube, which is to say horrible.

Now that iTunes is competing head-to-head with Netflix, Apple really needs to lift its game in the reviews department. Netflix’s reviews are very well done — they basically weight reviews by people with tastes similar to yours more strongly, and reviews by other folks less strongly.

It seems to me that Netflix is to video what iTunes is to music — a very successful business that is undermining the way that the content distributors prefer to do business. A person pays NetFlix $20 (or so)/month and sees all the movies he/she can be bothered to see. After a while he/she stops going to movies and largely stops buying DVDs. When my wife or I see an interesting trailer, we usually just add it to our Netflix queue — thus making the studio, what, $0.25? $0.10? I don’t know how much Netflix pays for a DVD (including rights to rent it out), how long a DVD lasts, whether Netflix pays full replacement cost for damaged DVDs, whether Netflix pays royalties per rental, etc. etc. but I can’t imagine it all adds up to much more than say 25% of the cost of a DVD divided by 20.

The apparent high participation of studios in iTunes rentals reflects the fact that the studios are going to earn FAR more from the iTunes rental model than from the Netflix rental model (or Blockbuster’s imitation). For now, the iTunes rental library is slated to be ~1000 movies by the end of the month; last time I checked NetFlix’s library was 60,000, and there’s plenty of stuff that hasn’t made it to DVD.

If and when there are 1000 or more movies to rent on iTunes, I don’t think anyone will be able to find them. E.g. if I type “Robert DeNiro” into the iTunes search widget, it doesn’t bring up “RONIN” — one of the current top rental titles. If I search for “Pixar” it doesn’t find any of Pixar’s feature films.

Improving iTunes Rentals

Obviously, you need to be able to filter for movies you can buy vs. rent. I imagine this will happen pretty soon.

Next, the search function seriously needs to be fixed, and it’s something an intern could probably do in a day or two (while the library is so small), but it will become a bigger deal as the library gets bigger.

Apple seems to be stuck with a broken user review system — but I guess on the positive side it can probably all be fixed in one place (just look at the way the same system works in apple.com/store). One of the major problems with this kind of review system is that lots of people treat the system as a way of giving feedback on the shopping experience or some random other thing (like price, or upgrade policy, or whether some other product they’ve gotten confused with this product was good). For movies or songs where the price and shopping experience are (generally) fixed, this is probably less of a concern.

Then there are obvious synergies — such as discounting the purchase of a movie you’ve just rented (the way they discount albums if you already own tracks). This kind of thing will let Apple compete with DVDs and Netflix in ways that don’t let them fight back.

For ten years, I’ve been saying to friends and anyone else who is sufficiently immune to boredom that network TV was headed the way of commercial radio, and predicting it would be all over in five years. I was obviously at least five years ahead of myself. The proverbial fat lady hasn’t sung, but I believe that the television writers’ strike will be looked back on as marking the beginning of the end, a watershed moment.

Network (and indeed “standard cable”) television is dead to me, and I suspect many others. At its last gasp, it produced some of its best work ever — amazingly original television shows like Lost (season one, at least), and brilliantly executed retreads of old concepts such as Monk and Battlestar Galactica. Many television critics observed that television was entering a golden era, just as its audience began to disappear. And probably for just that reason. As network executives flailed about trying to figure out how to get ratings, it must have occurred to some that perhaps actual good writing might do the trick, and for a remarkable number of shows, it did.

But, just as a gas flame burns brightest when its supply is cut off, television has flamed out. The brilliant new shows have exploded as their hail mary concepts have been forced back into the tired “it must last five seasons of twenty-two episodes” formulae, and the writers and producers have leapt at each others’ throats in some kind of insane suicide pact. It’s worth noting that two of the best recent shows — Lost and Galactica — both nearly lost it with padded episodes intended to stretch their arcs to five seasons, but then made mid-course corrections and then cut their arcs to four seasons.

The underlying problem is completely obvious and perfectly analogous to the music downloading issue.

First of all, people want to watch good shows, and they prefer not to see ad breaks. They’re actually quite happy to pay for the shows without the ads — witness the huge numbers of TV shows selling on DVD. And they’re going to turn out to be quite happy to see “TV” shows which never get shown on TV (or perhaps only appear on TV as reruns — the way movies do).

Second, commercial television is an extremely inefficient mechanism for delivering content that people want to the people who want the content, just as it is an extremely inefficient mechanism for delivering relevant ads. Guess what? The exact same issues apply to commercial radio, radio advertising, and music. Premium cable is even worse, incidentally. It’s cheaper and more satisfying to watch the Sopranos, say, all at once on DVD than be strung out waiting for it to show in installments as HBO tries to tease out subscriptions.

How is this playing out?

Well, folks are buying the stuff they want direct from the source (or, as direct as they can), and ignoring the middleman. In this case it means buying movies and TV shows on DVD or from iTunes and ignoring commercial TV … in ever greater numbers. And the writers’/producers’ mutually assured destruction is just hastening the end.

Futurama has just gotten a new “season” purely driven by DVD sales.

I’m surprised that Stargate SG-1 didn’t continue as a pure DVD/iTunes venture, but I suspect that was more a consequence of writers’ fatigue than economics. Don’t be surprised if, say, Firefly comes back as a DVD/download-first, see it repeated on TV later, production. The economics aren’t incredibly difficult to calculate. Suppose that a studio gets 50% of iTunes sales, a show like LOST might cost $3M per episode to make and (currently) only make $250,000 from iTunes sales alone. But imagine if LOST were produced a bit leaner (e.g. it were made in Canada or Australia), had a rabid fanbase (OK, that doesn’t stretch your imagination much), and were coming out on iTunes exclusively one week before it was shown on TV.

This is speculation, but it seems pretty inevitable to me.

I’m currently watching seasons one to three of The Wire on DVD. This is a brilliant show that could never be shown on US commercial TV, doesn’t fit the network formats at all (1h episodes, profanity, nudity, violence, and 12 episodes per season).

The commercial television networks don’t have a big fork in their asses just yet, but their asses are probably tingling in anticipation.

This little bit of information is probably obvious to some people, but it wasn’t to me, and evidently has been missed by a lot of bloggers. Everyone who keeps track of Apple knows that NBC Universal pulled all of its video content from the iTunes Music Store. Depending on your various preconceptions, this is either a sign that Apple is doomed (of course) or that NBC is run by idiots (of course) or some random and elaborate conspiracy theory.

Today, on Sci Fi (which is part of NBC Universal), I saw an ad for Battlestar Galactica Razor, and noticed something interesting: it’s on HD-DVD. And suddenly, I realized exactly why NBC Universal pulled its content from iTMS. It’s Platform Wars, Episode IV: The Empire Strikes Back.

When you see HD-DVD, think Microsoft. When you see Blu-ray, think Sony, Apple, and most everyone else. That’s a little unfair. Some other companies with no specific Microsoft or Apple affiliation have simply been (or felt) forced to pick a side. Others, such as Toshiba, are trying to do to Sony what Sony has done to them. But you know from the existence of MSNBC that NBC has always leaned — hard — towards the Microsoft camp.

So it’s all about allegiance to the Microsoft DRM-everywhere camp.

I guess the “NBC is run by idiots” theory wasn’t too far off the mark.