iTunes’ Content Pricing Not in Crisis
May 15th, 2008
Daniel Eran Dilger
Apple critics have been working to push the idea that the company’s pricing models in iTunes are in trouble and that HBO’s recent deal to sell shows for $2.99 per episode will cause a stampede toward untenably higher pricing. They’re wrong, here’s why.
Pricing Content to Sell.
Apple has worked to keep iTunes’ prices simple and affordable. As a retailer, Apple sets its own prices in iTunes, but it still has to negotiate for wholesale deals on content that’s only available from a single source: it can’t get NBC’s TV programing from Fox.
That means the labels and studios have a strong bargaining position. Apple can’t simply dictate prices; it has to present a convincing argument in order to get the content sources to play along. The company pioneered fixed rate music at 99 cents, then introduced TV episodes and music videos at $1.99, and then movies for $9.99 and $14.99.
Convincing movie studios to sell their releases as downloads took some effort and time. Apple first inked a movie sales deal with Disney and a few other studios, then introduced rentals (but not sales) with all the studios, and only recently announced an agreement to both rent and sell movies from all the major studios at standardized prices.
Get More, Pay More.
When HBO announced its deal to sell its popular original series on iTunes, including the Sopranos, Deadwood, and Rome for $2.99, critics howled that Apple’s pricing model was falling apart and that the studios were going to hike up prices into the stratosphere. A number of iTunes users also cried foul, adding scores of comments on the new series that called the $1 premium “jaw dropping” and encouraged other users to boycott buying the shows.
Of course, those new HBO series are hour long shows, as reader Juan Trujillo pointed out. HBO also began offering half hour episodes of Flight of the Conchords and Sex and the City for the usual $1.99, along with the hour long, but less established series, the Wire.
HBO’s pricing signals no new real change; iTunes has also been selling hour long episodes of PBS’ NOVA for $4.99. HBO’s pricing is really just another case of paying more to get more. Amazon sells 12 episode box set DVD packages of the Sopranos, Deadwood, and Rome for $60, twice the price of HBO’s other shows on DVD, which include 12 to 18 half-hour episodes. Apple is only charging a 50% premium for the 100% longer shows. No need for jaws to drop and outrage to ensue.
Two Wrongs Make a Write: the Mercury News Interviews Rob Enderle.
Had the media consulted a simple calculator rather than a calculated simpleton, they wouldn’t have seen any crisis brewing with iTunes prices. Instead, lazy journalist stand-ins, including the San Jose Mercury News’ John Boudreau, rushed to ask what Silicon Valley’s “Embarrassing Enderle” could make of the issue.
Enderle said the “pricing shift” indicates that ‘not all content is equal,’ apparently also unaware that the more expensive HBO shows are twice as long. He also suggested the non sequitur that studios could soon begin selling movies as downloads “while they are still in theaters.”
“Maybe a first-time [sic] movie will sell for $30. It’s not going to sell for $2,” Enderle was cited as saying. So there you have it: not only will studios dismantle the theater business to sell first run movies as downloads, but customers will pay three times the price of a theater ticket to watch the show at home rather than on the big screen. Why is Enderle making fun of himself? Apparently just for the opportunity to reaffirm his disdain for Steve Jobs.
Apple’s HBO deal signals shift in iTunes pricing – San Jose Mercury News
New York Times Violates its Own Microsoft Shill Policy
Enderle Doesn’t Know Jobs.
Enderle recently explained in a blog posting that his opinion of Jobs comes entirely from reading the tell-all gossip books that portray Jobs as a crazy, horrible, accidentally successful jerk. Enderle has contributed many efforts to snowballing the fantastically fictional persona of Jobs as a bumbling tyrant. The Merc cited Enderle as saying Jobs “thinks the content people are clueless, and he wants to make sure they don’t destroy the market.”
But that’s not true at all. According to Jobs’ own words, he respects the studios and labels as being uniquely qualified to find and develop talent. Jobs worked hard to convince them that effectively priced download sales are the road to building out of the mess of stagnant CD sales and widespread online piracy. Studio executives, including Warner CEO Edgar Bronfman Jr., complained loudly about wanting to set “flexible pricing,” but Apple overcame those objections by predicting and delivering successful sales, not through name calling and the dramatic hijinks that sell books.
In a Rolling Stone interview from 2003, Jobs said, “At first, they kicked us out. But we kept going back again and again. The first record company to really understand this stuff was Warner. They have some smart people there, and they said: We agree with you. And next was Universal. Then we started making headway. And the reason we did, I think, is because we made predictions.”
Apple predicted that subscriptions would fail and that customers wanted to buy music to own it. The studios worked hard to pursue subscription revenue plans until it became obvious that there were relatively few individuals interested in paying to rent music. Apple sold music, and its success eventually convinced all the studios to join in. The continued success of iTunes since has further convinced TV and movie studios to sign up and sell their content at predictable, reasonable prices.
Much Ado About Nothing.
There was no soap opera going on where Jobs called the content producers “clueless” and they reacted by setting prices higher. Apple has simply negotiated pioneering deals for content over the last half decade that have incrementally caused iTunes to grow as the most successful online media store. During that time several content executives have rambled off into episodes of kicking and screaming, but they come around once they smell the money.
Microsoft has fallen into line to copy Apple’s successful store model, but it has no audience to sell content to, so its copycat efforts are making no impact on the market. As the Fake Steve Jobs noted, NBC’s posturing deal with Microsoft’s Zune store is the “first time I’ve seen rats swimming toward a sinking ship.”
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