This sounds wonderful, but I think it's unrealistic to expect this model to go mainstream. The pricing logic here completely ignores the costs involved. It's like saying that some people are sick of paying $20k for their cars and predicting that Apple is going to design a better car (tangent: wouldn't that be nice?) and sell it for just $1k. Sounds great, but it's just not possible.
Contrary to popular belief, not all of that $150 you give to Comcast each month (ouch) goes to buying yachts for Comcast's CEO. Some of it goes to building and maintaining a network. Some of it even goes to pay for the production of those movies and television shows you're watching. The costs of producing entertainment and running large-scale networks is probably not going to drop by 90% any time soon.
The more likely scenario is this:
Comcast: May I help you?
Me: Yes, I'd like to cancel my $150/month TV+internet package and just get an internet-only package because I can get all the content I want over the internet now much more affordably.
Comcast: OK, no problem. Our internet-only packages run $145/month.
I still think this is a huge improvement, mind you. Having everything on demand is much better than worrying about TV networks' schedules. And those who watch less can now pay less (i.e. those who watch more can pay more...). I just don't see everyone's bill going from $1,500 a year to $100 a year, like the article suggests.
The pricing models are ridiculous. I cut the cable cord over a year ago, cancelled my $150 a month plan, and now enjoy $30 a month Internet only with $10 a month streaming Hulu plus, $9 a month streaming Netflix, and save a ton of money every year.
The cable business model is dead. I'm sorry, but it does not cost $billions to produce these TV shows. I only watch about 3 TV shows regularly and spend maybe 2.5 hours a week doing that, so I'm not going to pay more than a few bucks a month. Also, I'm sorry, but if I pay for content, I am not going to let you get paid to show me unskippable ads. Not going to do it. The market has spoken. Technology is catching up to the cable companies and they are going to be relegated to bandwidth provider status.
Actually your model doesn't really match the economics. First I'm taking Netflix/Movies off the table for my response, totally different business model.
Most people don't understand how networks make money. The networks make money by one of 2 methods.
1. Ads.
2. Carriage Fees. Carriage fees are a portion of your cable bill that goes to the networks. These fees are MASSIVE. ESPN makes $3-$4 per subscriber (all subscribers - not just ones who watch ESPN) They make a billion dollars a year this way. Most networks make under a buck but still multiply $.50 (what Food Network gets on Cablevision - as an example [1] ) * 80,000,000 (estimated cable households in the US * 12 (months). And you end up with $480,000,000
So can you deliver content via the internet in a better way then over cable - maybe. But you also need to replace the revenues they're paying to the networks and nobody has figured that out. The cable companies and networks are tied together so tightly in this model that an OTT model doesn't make sense.
There's no way that $10 (per viewer) a month split between each of the shows comes anywhere near what the big networks are making in carriage fees. The bigger Hulu gets the more dangerous it gets to existing models and the less likely that it will get top tier shows.
As the producer of Modern Family said "Some estimate Hulu IPO could bring in $2Bil. What will the content providers get? Zero. What is Hulu without content? An empty jukebox."
If you're only watching 2.5 hours of TV regularly then you should cut the cord. But most people are watching that much a day [2]. Thats 17 hours a week (or close to 1.5 seasons of a one hour show a week). Even if seasons were $12 you end up paying over $60 a month. (and you need to know what you're watching).
I think it's fairly uncontroversial, especially in this forum, to say that I'm sick and tired of subsidizing a race to the bottom. Food network has increasingly stopped showing cooking shows, and I'm ready to vote with my wallet. The same goes for most of the other subject networks. If they lose that money, I'll be quite content, because they deserve to lose it.
That's right, Hulu is a network, not a TV producer (well, technically they do produce at least one show that I know of). Modern Family's producers get paid every time Hulu airs a show. All they have to do to make money is price it appropriately.
Let's do some napkin math, shall we?
Let's say Modern Family has 20 million regular viewers. Let's say it costs them $5 million to make one episode in production costs, actor salaries, etc. They can charge Hulu or Apple $0.50 to show an episode to a viewer, and then Hulu can either choose to sell 4 30 second ad slots for $0.25 each, or Apple can choose to charge $0.99 per episode. The producers made $10 million revenue for 50% profit, Hulu/Apple also made $20 million revenue for 50% profit, everybody wins.
The problem is that the cable companies and networks are used to being able to double and triple dip at the well of consumer spending. Charging for content and ads is double dipping. Bundling channels I don't want with the few channels I do want is triple-dipping. Why should they be allowed to do that?
There is plenty of profit to go around, but the cable companies might not like having their piece of the pie made smaller.
You're not really the typical TV watcher. The average person watches nearly twice as much video in a day as you do in a week. There was a NY Times story a few days ago examining cord-cutters showing the numbers just don't back up the hype. People actually aren't cutting the cord. They might be scaling back (who needs 30 HBOs?) but for the most part they're willing to pay for linear video services. I agree the future of cable / telcos is being an IP pipe but I don't think they'll be dumb pipe providers. They'll either be selling the IP services or cutting deals Verizon/Google style to maintain control of the network in other ways. Think about it from the perspective of Hulu -- wouldn't it make sense to cut a deal with Comcast if they were willing to make it very difficult for their subscribers to download illegal files? You'll end up subscribing to Hulu or Netflix the same way you subscribe to Comcast's digital premium expanded gold package or whatever they call it. Just another line item on your Comcast bill.
I know why I haven't cut the cord yet: sports. AppleTV doesn't solve this problem either. ESPN360 only kind of solves it since they black out any big games and it's kind of a pain to get on your TV. Until there's a way to say "I want nothing but a selection of every currently playing sporting event, and those I want in the highest possible quality", then it will be very difficult for me to avoid forking over money to Comcast. This despite the fact that I have developed something I can only call genuine hatred for them over the past 8 years.
How/where did you get $30/month internet? As soon as I ditched the TV part of the package from Comcast (and lost the BS 'bundle' discount), internet-only service went up to $60/month.
I (very happily) pay about 40 euros/month for unlimited internet (fiber nonetheless) plus free VOIP to Europe and the USA/Canada (and relatively cheap rates elsewhere). I believe I could get VOD as well plus TV but I have no interest in the latter and get my video from iTunes rentals.
Poor Americans are so isolated in their MSM cocoon they have no idea how they are ripped off! One would think that since they spend 40+ hours a week or whatever it is watching telly they would at least understand the true costs (i.e. how much they are being exploited).
Northeast - Cablevision. I'll admit the $29.95 is an "introductory rate" for the first 12 months, but then it only goes up to $49.95 a month. It's not a bad price for 20 megabits down and 2 megabits up.
Hulu Plus is still in preview but I got an invite recently. (though I haven't used it yet) I suggest you sign up here for the waiting list: http://www.hulu.com/plus I received mine 3 weeks ago and had signed up a couple of weeks after the announcement.
I received my invite about two weeks ago and signed up immediately. I do not have cable (or a tv), but I'm not sure if I will keep subscribing.
I don't spend enough time watching it on my iPad, and there's far too many shows that are still restricted to the last x (5 normally) episodes.
If you're caught up on the shows you watch, there's no need to subscribe unless you want it on other devices as well. But if you want to watch the whole series of a show, $10 is much cheaper than buying or renting elsewhere.
Yep, preview invitee. It's not all it's cracked up to be. Sure, you get back-seasons of some shows, but for PS3 and iPad there are no closed captions, which seems like a huge step backwards.
720p is nice on the shows that have it though. I have a laptop connected to a 55" LED-backlit LCD TV via HDMI and it seems to work pretty well for me.
I've got an invite, and I was not impressed. A lot of the recent content is still only available through the web site, and the recent content is the only reason to get hulu in my opinion. If you want old shows, netflix is the way to go.
This will probably improve over time, but I don't anticipate keeping it much longer.
We know what it costs to buy internet-only: you can buy internet from AT&T for $30/month if you get DSL. So it's unlikely that many people will opt into $145/month internet-only cable.
Will the pricing go from $150/month to $10/month? Almost certainly not. Will pricing go from $150/month to $70/month? It seems quite possible - because internet access is a commodity, unlike cable tv.
Right you are. The $145/month was a bit of hyperbole. I think expecting this market to allow 50% of its revenues to dry up is pretty optimistic. 93% (as the article suggested) is just very naive. They'll find a way to extract our money.
Incidentally, Time Warner just informed me that they were raising the price of my internet-only plan to $54.95, and pointed out that internet + cable plans start at $56.95.
We have Comcast at our business location and they do something similar. Internet is something like $63/mo and Internet + cable is $68. We switched over to them after Qwest notified us that their DSL rate was going up 20%: $65 for 1.5 Mbps from Qwest or $63 for 12 Mbps from Comcast.
Contrary to popular belief, not all of that $150 you give to Comcast each month (ouch) goes to buying yachts for Comcast's CEO
Programming costs alone are going up about 10% per year while the average provider rate increase is only about 5% per year. Over the next 2-3 years we're going to hit the point where selling linear video service is unprofitable for cable providers. The ESPN 360 model of IP services being bundled with access is probably the future. I could see Hulu, Netflix, etc partnering with providers on this. Apple is probably at a disadvantage because you know they won't be interested in offering iTunes Store access on some cruddy Motorola or Cisco set top box. This makes me wonder if the new iTV could perhaps be something Apple sells through partnerships with cable / telco video providers. They got into bed with AT&T so it's not unthinkable they would do the same with Comcast or TWC.
Except, I already did this. "Hi Speakeasy, I don't want TV." "That's great, because we don't sell TV service."
I have never had cable or satellite TV in my adult life. And I've never had to pay extra for Internet access.
If people actually want Internet-only TV subscriptions, the market will force Comcast to lower their prices. But I think most people want an endless stream of crap so even when they're bored, they can do something that requires minimal energy expenditure. So Comcast should be fine.
But anyway, I'm pretty sure that paying 99 cents an episode for shows that are already broadcast into your house for free (courtesy of "the networks") is a good deal for Apple and not such a good deal for you.
If people actually want Internet-only TV subscriptions, the market will force Comcast to lower their prices.
Perhaps yes, eventually, but it could be years. The market for high-speed internet connections in most locations is, at best, a duopoly, due to the high fixed cost of installing infrastructure.
By analogy, think of what unreasonableness the electrical company could get away with if they weren't regulated. The market for high-speed internet connectivity isn't that bad, but it's certainly not a free market in the same sense that pizza delivery is.
It looks as though Apple TV is going to do what the Roku Player has been doing for well over a year now.
I got my Roku box for $99 (it's even cheaper now), and at the time it only did SD streaming from Netflix, but they have done several software updates since then, and it not only does HD from Netflix (and works beautifully), but it also streams from Amazon's VoD service, which is where I get most of my content when I can't get it through Netflix.
They've also added "channels" which allows any streaming video provider to hook into their API and stream to the Roku box, including the handling of paid subscriptions. Every day it seems like there's more. You can even get live baseball games and UFC fights.
I dropped my cable after the Roku. And to the above poster that said internet would barely be cheaper without TV, I have ATT U-verse, and it's $65 a month for internet-only 24mbps, but if you want an inexpensive option, I believe it goes all the way down to something like $25 a month.
I used to use torrents for some TV, but now that it's so easy to just stream stuff from Netflix, Amazon, etc, and watch it on my TV the same way I'd watch something on a Tivo, it's just not worth the hassle anymore.
The cable company's days are numbered here if they don't adapt to this new business model. I could never imagine paying $100+ a month for TV ever again.
I still think the pay-per-episode model just isn't going to work in the US. We just watch too much TV. If you're an average American who sits down and watches 4-5 hours of TV a day that's going to be at least $150 per month in rentals. That's just for one individual too. A household of people watching different shows at a 99 cent per show fee could rack up a $500/month bill pretty quickly. Rental prices would have to be much closer to 5-10 cents per episode to be economical for most people to replace cable/satellite.
>that's going to be at least $150 per month in rentals.
That's the kicker right there. At $1/episode they're practically charging the cost of buying a DVD, except for all you're getting is streaming or crippled DRM'd 640x480 video - really just a rental.
$15/season ain't happening, and the formats they're offering aren't a reasonable value proposition for the buyers.
It doesn't have to replace cable to be successful. You can still miss a show, and want to get it NOW! This 99c model allows you to do this, without even thinking about it.
There are lots of people who miss a few episodes. There are lots of people who don't want to own tv shows? (what is the point?). There are lots of people who don't watch as much tv.
As I was preparing for the new Mad Men season, I noticed that AMC was selling old Mad Men episodes for 99¢. At that price, it's about as cheap as renting the DVDs, and I thought Finally a network is coming to its senses.
That was short lived, however. They jacked up the prices when the new season started.
At 99¢ per episode or, say, $20 for a season I would jump right in and probably cancel my cable.
I stopped using my iPod and went to a zune because I was tired of getting 99c to death. It was the best move, I would rather just pay my music "tax" and have access to all the music I want. Currently, there is about $1000 dollars of music on the device, when I had my iPod I never spent more than $100 dollars a year.
I am one of the few that actually want to pay for the things I like, as it will ensure that more of those things will be available.
out of (genuine) interest what happens to the $1000 of music if (gasp!) you ever decide to move to a non-zune device? Can you export it in an open format to move to the new one?
I'm sure they don't travel with me, but at $13 a month it is worth it. they will still cost $1000 and I have only to pay $140 (year). So if I need to move and want all the music which I won't not at $1000. I would have paid a 14% premium. the subtract all the music that I am either done with or didn't really like, I am sure that I will come out a head.
Hey, maybe that is a good business model, get a two month subscription service where you can access all the music and train the system to understand what you like so you can pay as little as possible for DRM free music. Best of both world.
Or we can all just enjoy Justin Beiber and the Youtube way of picking music.
No thanks. It'd mean I'd end up paying $0. Quite frankly, no show is worth $1 for a single watch. Except maybe Nova (and PBS is OTA). If their non-prime-time dropped to $0.10, possibly all the way up to $0.10, then I might go through upwards of $50-$100 per year.
Which is $50-$100 more than they're getting from me now. You'd think they'd be interested in a market they've previously had totally untapped, but they don't seem to be.
It may be $50-$100 more than they're getting from _you_, but it is several hundred dollars less than they're currently getting from your neighbour. And since they can't find a way to offer that deal to only you and not your neighbour, they're better off not taking your money, since it means they get to keep taking more money from your neighbour.
Or so the theory goes, if adhered to the current hypothetical parameters which seem to be making the media industries perform very slow seppuku. If people were happier with what they watched, wouldn't it stand to reason they'd watch more? Doesn't Econ 101 also cover why demand is good for your income?
Not that I think you're wrong :) I'm definitely in the minority in this. But I do doubt these sentiments / desires / tendencies are in the minority.
I doubt this will do much - people have found out that you can download whatever tv show you want online, why should they pay for it on iTunes?
It might have a very, very small chance of working in the US, but outside its borders it faces an even bigger problem: most tv shows that can be seen here are several seasons behind, how can Apple compete with that handicap against free downloads for anything other than the "I am too scared of computers to even go near them crowd?"
I have had those problems. If someone only watches a few shows, this could be a good deal. Also, I could never see my dad using bittorrent. It would be way too complicated for him.
Contrary to popular belief, not all of that $150 you give to Comcast each month (ouch) goes to buying yachts for Comcast's CEO. Some of it goes to building and maintaining a network. Some of it even goes to pay for the production of those movies and television shows you're watching. The costs of producing entertainment and running large-scale networks is probably not going to drop by 90% any time soon.
The more likely scenario is this:
Comcast: May I help you?
Me: Yes, I'd like to cancel my $150/month TV+internet package and just get an internet-only package because I can get all the content I want over the internet now much more affordably.
Comcast: OK, no problem. Our internet-only packages run $145/month.
I still think this is a huge improvement, mind you. Having everything on demand is much better than worrying about TV networks' schedules. And those who watch less can now pay less (i.e. those who watch more can pay more...). I just don't see everyone's bill going from $1,500 a year to $100 a year, like the article suggests.