The Clicker: Television Physics and the $1.99 price point
Oh to be Steve Jobs… Yes, rumor has it that he
struck some sort of perverse deal with the devil, the details of which are sketchy but apparently require that he dress
in the black-turtlenecked uniform of a Selsun Blue model. However, can you blame the guy? It's a small price to pay for
such incredible success. Just look at the power he wields. He makes one little announcement like "We'll begin selling
select television shows for download" and poof: the world goes wild. Stations begin to revolt. Well… not revolt but
rightfully ask "Excuse me guys – what's in it for us?" (The answer is, of course, very little). Eccentric billionaires
like Mark Cuban hail the brilliance of the move. Ripples of shock are sent through the industry. That's so
Raven Steve Jobs.
It's a bold move to be sure. However, the question still remains: has Steve Jobs saved network television or simply
helped to hasten its death?
You see theres a secret in the television industry. Network execs dont like to talk about it, but its there.
Quite simply, television works in large part because people are lazy. Take a minute. Its rough to hear, but they count
on the fact that your entropy drives you. Or, more to the point, it doesnt. Television physics dictates that a channel
in motion stays in motion, and television economics have evolved to rely on the fact that people who start watching
television will continue watching television.
Television physics is one reason for Apples $1.99 pricing paradox. The Apple pricing paradox is that odd disconnect
between what consumers view as the reasonable price for an iTunes show and what the networks view as the correct
price. Ask any person on the street and she will tell you that $1.99 seems quite high for a show that she now watches
for free. Ask the networks and they will tell you that the $1.99 is, if anything, too low. How can that be?
(Disregard, for the moment, that its not free. If youre one of the 90+% of the people in the world who live gasp
without a DVR, youre paying for that show every time you reach past the Safeway Select Bleach and grab the
Clorox.)
So what are they paying for your eyeballs? Lets take a look at some very simple numbers:
Lets see Desperate Housewives gets about $330,000 per 30-second slot. There are approximately 17 minutes of
commercials per hour. That brings us to a little over 11 million dollars of ad revenue per episode of Desperate
Housewives. Latest estimates show that 17 million of your closest friends are likewise indulging in that
ever-increasing estrogen-fest. Do a little more math and youll see that advertisers are paying about 64 cents per hour
per viewer. So why the large gap between the 64 cents that advertisers pay and the $1.99 Apple charges? Clearly its
not distribution. While distribution isnt free, its likely to add but a dime to the overall cost.
The numbers dont quite add up, you think. How could networks possibly claim to need more than a 3x difference
between traditional advertising revenue and per episode download revenue?
Heres where the house of cards starts to tumble. The fact is, shows rarely stand on their own. For instance, network
news has traditionally been a loss-leader, depending on its Friends revenue to subsidize it. Purists preach that
news cant be a business lest actual profit taint its objectivity. Realists argue that the apathetic public wouldnt
pay for news. Either way, the news is rarely a money-maker. Popular shows like Desperate Housewives make other, less
profitable, endeavors possible. The hope is that the network, as a whole, will be more appealing and you know what they
say a rising tide floats all boats.
In other cases, the subsidies are far more subtle (yet still very real). The networks count on the television physics.
Dont believe me? Consider this fact: at one point in time Jessie was one of the most watched shows on television.
Having trouble remembering that show? By all relevant numbers, it was a hit, and yet most people would be hard-pressed
to give you their favorite Jessie moment. Thats because Jessie was the product of bundling. The show was placed
smack-dab in the middle of Must See TV. NBC was rolling. The rest of the night was so strong that The Potted Plant
Show would have garnered a 15 share. Based on that strength, NBC was free to place a low-cost high-margin show into
that time slot. Did Jesse earn 15 share money? Of course not, and thats precisely the point. The strength of that
evenings schedule gave an otherwise horrible show a large viewer base. Switch the dynamics and ask people to
choose the shows they want to watch and, poof, Jessie and her profits disappear. By offering a pay-per-episode
model Apple is threatening to both deprive networks of their bundling revenue and strip them of their brand identity.
You can start to see why the networks might show some trepidation about this new venture. You can also see why they
might price shows like Desperate Housewives such as to compensate for their complete economic loss.
Still not convinced that per-episode-downloads would shake things up? Consider for a moment that the average US
household television consumption per day is a mind-numbing (both figuratively and literally) 8 hours and 11 minutes PER
DAY. At Apples $1.99 pricing model that works out to an average television bill of $486 per month. Is it possible that
people might start turning off the TV if they were charged per show? Is it possible that the economics of television
assume a passive audience thats willing to watch ANYTHING as long as they dont need to move?
In any case, its unclear that television can handle per episode sales. Like DVR use, as long as the majority of the
people remain stuck to their couches, listening to those insipid jingles, it works. However, as DVRs near the tipping
point, DVRs and per-episodes downloads threaten the networks bread and butter. Suddenly youre not only skipping
commercials youre skipping shows and they just cant have that.
If you have comments or suggestions for future columns, drop me a line at theclicker@theevilempire.com.
