Why are 99c TV shows only a step in the right direction?

In a January article “Apple pushing TV Networks to slash prices on iTunes” and more recently “Apple to offer $1 TV shows in April” Business Insider/Silicon Alley Insider suggest Apple are pushing the price of programming through iTunes down, with the goal of selling “some shows” for 99c.

This is absolutely a step in reality’s direction but it still prices individual programs at well above the traditional income-per-viewer that networks have traditionally received, and way above what it would cost for an average viewer via a cable or satellite subscription.

At 99c, the content owner would get 65c per download as Apple take 35% and pays for the bandwidth (at about 10c a GB).

65c per viewer per show is right at the top end of what the big four networks have been able to command from advertising: per show, per viewer. (Even the Superbowl only gets 85c average per viewer per 3 hours show).  At the other end, the big four get a low of 25c per viewer per show.

But not all television is “big four” nor is it always worth the network premium. Take one of my favorite shows: The Daily Show with Jon Stewart. The best research I can find is that Comedy Central pays Stewart’s company about $5 million a year or $32,000 each for the 160 shows a year that are produced. The Daily Show has an audience of around 1.5 million viewers according to Wikipedia and other sources. Cost of production to Comedy Central is just about 2c per viewer.

Presumably Comedy Central are turning a profit between the 60c per subscriber per month they get from cable carriage and whatever advertising revenue is generated across the 5 or so showings of each episode.

And yet, through iTunes that show is currently $1.99 or 99c per episode if you buy a season pass for 20 episodes. (One of the few cases where a season pass gives significant savings). It’s still too much.

If Jon Stewart’s company sold direct through iTunes at, say, 10c an episode (because once watched it has little future rewatching value, unlike episodic drama or comedy) then gross revenue would be $150,000 per show or $97,500 after Apple’s cut. (Apple’s bandwidth cost would be around .6 of a cent in SD, or $8550 leaving Apple $43950 gross profit on the sales.)

On the other end of the equation, the content creator (Stewart) gets $97,500 or three times the income for the same show as working for Comedy Central brings.

So, while 99c TV shows are a step in the right direction there’s still a long way to go before Internet, on demand, video reaches fair price parity with traditional revenues. This is not an opportunity for the existing entrenched players to dramatically increase their margins: it will kill the nascent future.

6 replies on “Why are 99c TV shows only a step in the right direction?”

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  1. Well put. I think similar stuff has been pontificated over many years, but somehow just doesn’t take off. It’s like the entire industry can’t break itself away from the teat of agregators like networks. Even if those agregators take the lions share of the profits from those who actually produce the creative work.

    I think it was once calculated that if Battlestar Galactica sold their show directly to consumers for 25¢ an episode (and were somehow able to keep the size of their audience without a network) they’d be getting something like 4x what the network was paying.

    I think what needs to happen is a hit show needs to create a second series (a spinoff) solely on the web, or through an agregator like iTunes, but with the same quality and length as the broadcast show. Run it concurrently for a couple years and then segue solely to the online show.

    SciFi would be perfect for this- BSG, Statgate, etc, had huge loyal followings to buy into the content. Plus, they could advertise it on the network version of the show because, without mass exposure, it’s hard to find the mass audience that would make it profitable.

    American Idol could really launch this kind of delivery as there is CERTAINLY more than enough content for additional shows than the 1-2 they put on a week now.

    Eventually, if done enough, people would “get it” that they could find good programming online. Watch a few free episodes and then subscribe.

    But, as you have clearly demonstrated, the current pricing scheme is nowhere near workable. $2 per episode is priced as if it is the only episode of the only show being purchased. If the average viewer watches just 3 hours of programming a nite, that’s $6 a nite, $42 a week. People pay less than that- a MONTH- for ALL their cable programming. And with cable boxes now acting as PVR’s that can record upwards of 4 programs at the same time, time and place shifting is easier than ever. So direct-purchase-TV doesn’t really offer that as an +advantage_ over broadcast-TV.

    As you say, the costs need to come DOWN. Big time.

  2. Very well put together piece.

    Your article got me thinking: Would there be a day where the networks weren’t even necessary?
    And unfortunately, it still comes down to distribution. Not of the material itself, because iTunes and the internet can handle distribution to the end user, but instead distribution in the sense of “to the masses” (in order to gain an audience of a number large enough to support a production of a decent enough quality).

    YouTube is awash with videos and video producers doing shows that “air” on a regular basis. But with very few exceptions, they do not garner a large enough audience to be truly iTunes-worthy, even at 50c an episode.

    One of the exceptions is Michael Buckley of WHATTHEBUCK fame. His shows air on a regular basis, and he uses all forms of new media to communicate with his viewers (as a full-time job), and his shows average around 350K per show, with some reaching over 4mill (which does outdo the Daily Show). With numbers like that, Michael may be able to charge for iTunes downloads, however, he would need to stop uploading his content for free on YouTube, and that would probably start a revolt among his ardent followers.

    So the near future of “TV” shows may end up mirroring the current music industry; certain large entities feeding content to the “shrinking masses,” while more adventurous consumers find their fill in an alternative chaos that are the multiple online delivery systems.

    As a small time video producer, it is an interesting time in which we live.

    1. Well, there is another approach – Open TV Network’s klickTab let’s you set a price anywhere above 1c, and full RSS support direct to the iTunes software. This was the type of thing it was designed for.

      Philip

  3. Excellent piece, thoughtful comments.

    The American market is well on its way to digital delivery of content to the big screen in front of the Barcalounger in the living room, but market penetration of that hardware/connectivity doesn’t yet justify the kind of capital commitment necessary for an entrepreneur not currently entrenched in the entertainment business to launch a network of original scripted and/or reality content strictly through the Internet.

    Interesting as something like What the Buck is to its niche market, that guy’s show is not quite up to even E! Online’s content quality standards. From a business perspective, his show offers a contrast that really underscores the value of a paid writing staff – which ain’t cheap.

    The networks still own the game at the Big Leagues level because they have the capital and human resources as well as the infrastructure and mindshare to launch fresh content and sustain the inevitable failures. They are also in a far better position to further capitalize on that content through overseas television distribution, content repurposing, and a range of other revenue streams.

  4. The only problem with doing away with TV (cable and otherwise) is that it lets you “channel surf” for free. There is a new TV show called “My Great Show.” I see it advertised. I probably won’t want to even pay 25 cents because I’m cheap and don’t want to spend money on something I’m not sure I’ll like. If I pay 25 cents for every show I surf through, I will spend $10 a day!

    Now, once I’ve found a show I like, then even a cheapo like myself won’t mind paying 10-20 cents per episode of say Shark Tank. ESPECIALLY if it had zero or very few commercials.

    -trevor

    1. Even now, first episodes of a season are often free on iTunes for exactly the reasons you mention.

      Philip

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