Apple® today announced that it will not be selling NBC television shows for the upcoming television season on its online iTunes® Store (www.itunes.com). The move follows NBC's decision to not renew its agreement with iTunes after Apple declined to pay more than double the wholesale price for each NBC TV episode, which would have resulted in the retail price to consumers increasing to $4.99 per episode from the current $1.99. ABC, CBS, FOX and The CW, along with more than 50 cable networks, are signed up to sell TV shows from their upcoming season on iTunes at $1.99 per episode.
'We are disappointed to see NBC leave iTunes because we would not agree to their dramatic price increase,' said Eddy Cue, Apple's vice president of iTunes. 'We hope they will change their minds and offer their TV shows to the tens of millions of iTunes customers.'
First of all, I'm totally amused that Apple is dragging this dirty laundry out in public to shame NBC. It's a smart business move, and I have no objections to it: I just get a kick out of big corporations fighting.
Second, it brings up an excellent question about the value of content. Particularly content that is sometimes expensive to produce. What exactly do consumers perceive as the "right price" for something like a TV show?
What Content Producers Think
I think content producers operate on a couple of different mental models when it comes to pricing their content for digital distribution. Most of these models are terribly flawed, because they're not looking at the consumer's point of view.
Production Cost: "The more expensive it is to produce, the higher the price should be."
Length: "A one-hour TV show should cost around the same as a one-hour CD."
Cross-Media Comparisons: (To the most expensive alternative.) "We can sell a full season of DVDs for $60, which works out to $5 per show."
Threat of Withholding: "You're going to buy it at whatever price we ask, or else you won't get it at all."
These models probably only make sense to you if you're a content producer talking about your own content. As a consumer, they probably make you angry.
What Consumers Think
As a consumer, these are the things I think about when I am considering buying content.
Total Usage Time: "How much total time will I spend enjoying this content?"
Total usage time is very different from the length of the content. Total usage time is equal to the length, multiplied by the number of uses I expect to get from it.
For a CD or album, the total usage time is vastly different from that of a TV show. When I buy music, I expect to listen to it again and again. Most TV shows I only watch once. Sure, if it's a download I could watch it again and again, but odds are that the 45 minutes of content in your hour-long show is only going to get 45 minutes of my time. Or less. Movies and concert videos are somewhere in the middle: particularly good movies will sometimes get a second or third viewing, but still nothing approaching what a good CD gets.
Quality and Extras: "Is this particularly high-quality content? Does it have something extra that I'm interested in, like commentary or subtitles?"
Although this isn't my primary factor, I'm generally willing to pay a little more for content that goes the extra mile. Sometimes that means higher resolution (Blu-Ray vs DVD, or SACD or DVD-Audio vs CD vs MP3), sometimes that means particularly extraordinary special effects, sometimes it's commentary from a director or actor that I admire, sometimes it's a behind-the-scenes "Making Of" featurette.
For example, I almost never buy TV shows on DVD because they're just too expensive. But in the few rare cases where I do, it's because it's a show that I particularly enjoy and would like in a high-quality format with lots of extras.
Cross-Media Comparisons: (To the least expensive alternative.) "Can I get everything I want somewhere else, for less money?"
Sometimes I simply want to catch up on a show's plot developments. Reality shows are a good example: I sure don't watch them for the quality of the writing. If I'm traveling and I miss a showing of American Idol or Who Wants to Be A Superhero?, I'm not going to spend any significant amount of money at all on finding out who got kicked off this week. I'd rather just look it up online.
If it's a show like Battlestar Galactica that I actually do want to watch and appreciate, well, I own a DVR which lets me record the "free" showings from network or cable TV. Chances are unless I'm in a big hurry, I'll just watch the version that was automatically recorded for me once I get home.
This is also where piracy comes in. As Steve Jobs has said, content producers have to compete with piracy as a business model. Video-sharing sites and BitTorrent servers may offer the content at no cost. Piracy is a funny thing. It isn't attractive to most people ... until you start withholding or overcharging for content. Then it spikes. Personally I don't have any qualms about watching all or part of a TV show on YouTube if it isn't available anywhere else.
You can go into great depth parsing the legal arguments around both of those last two, but you'll be wasting your time. Consumers don't. The fact is that in our minds — yours and mine — TV show downloads are essentially competing with "free", twice over.
Convenience vs Importance: "Is the price I'm paying (in both money and inconvenience) proportionate to how much I care?"
Sometimes I'm only mildly interested in your content. I think most web browsing falls under this umbrella, which is why it's so difficult to make money by charging for content on the web. If I'm only mildly interested, I'm not going to pay you anything at all for it, but I might spend a few minutes watching it ... if it's free and easy to do so.
Of course, there are times when I'm extremely interested in your content. I'm generally more willing to pay money for it in that case. But the number of things that are quite that important to me necessarily has to be kept very small — because I don't have an infinite amount of money. (IMPORTANT NOTE: If you would like to give me an infinite amount of money, e-mail me and we'll talk.)
Resolving the difficulties
That's it. Those four criteria are what I use to evaluate prices as a consumer, and I would be willing to bet that I'm not alone. Realistically, I think the consumer models are what will ultimately drive the cost.
So what's the fair price for a TV show? If you go by total usage time, the value of a TV show is substantially less than the value of a single track of music, despite the fact that it costs more to produce. The convenience factor of getting it whenever you want it may bump up the price you're willing to pay, but I think that $2 is actually already too expensive in the minds of many consumers. They'd be better at $1 ... or even free.
What's the fair price of a TV show to you?