Parks Associates & The Entertainment Technology Center at USC have published a whitepaper, “How Hollywood Can Out-Apple Apple,” which reads in part:
Ninety percent of all broadband users have a mobile phone, but only 10% regularly use it to watch video; just 6% regularly use it to watch live TV. Similarly, one-half of all broadband users have a portable MP3 player but only 10% regularly use it to watch video; roughly one-half the number that have a video-enabled player. Why have consumers not been more receptive to portable video platforms? The answer lies in a mixture of technological and business challenges plaguing the industry.
For years, big-box retailers have used music and movies as a loss-leading lure for store traffic. Apple adapted this strategy to the digital age by offering content as a low-margin lure for hardware. The company gave away millions of free music tracks in order to prime the market for iPod sales. It likewise offered low-cost price points on movie and TV titles in order to promote ‘video’ iPods. The strategy has been a great success for Apple, but content producers have been less enthusiastic. The content sold by itself does not generate substantial amounts of revenue.
MacDailyNews Take: Giving away free music tracks did not “prime the market for iPod sales.” (See: Pepsi’s Apple iTunes promo nightmare, only 5 million songs redeemed.) The ability to rip our already-purchased CD libraries are what sold iPods initially and still sells iPods to new customers today. Anyone who tells you differently doesn’t know what the heck they are talking about. Furthermore, the lack of the ability to easily rip already-purchased DVD libraries via iTunes is the number one reason why consumers not been as receptive to portable video platforms as they have those that play music. (Yes, we know about HandBrake, but until it’s a feature in iTunes, it’s not mainstream.)
More from the “How Hollywood Can Out-Apple Apple” white paper:
Hollywood need not let Apple make all of the profit. If Apple is effectively using content as a loss-leader (or at least break-even leader), then Hollywood should similarly leverage content to promote sales of its flagship products. The latter must simply employ a different strategy.
Rather than asking “How much money can we make on portable content?”, the question should be “How can portable content help me make money?”
The full free white paper is available (pdf) here.
[Thanks to MacDailyNews Reader “Brawndo Drinker” for the heads up.]
If Hollywood really wants to make money, they should simply drop the senseless DRM they insist upon as it only punishes paying customers while generating laughter from pirates.
No white paper is necessary: Sell us good content that’s free of draconian restrictions at a reasonable price and we’ll make you rich beyond your wildest dreams.
Interestingly, Disney is listed as one of the The Entertainment Technology Center at USC’s “executive sponsors.” We’ll see how long that funding lasts.
Hollywood makes out just fine. Hollywood doesn’t have to incur the costs of producing physical media, shipping it to Wal-Marts and Best Buys, or other such costs. It simply takes the digital movie, encodes it as necessary for Apple’s delivery methods, and gives the movie to Apple. Heck, Apple may even do the encoding for the studios.
And the price point doesn’t have to change – consumers are used to paying ~$20 for a new release movie, and ~$30 for a Blu-Ray movie. So even a dollar off seems like a bargain to the consumer.
Uncle Walt, Uncle Steve and Mickey are all frowning when USC forgets the old axom: Don’t bite the hand that feeds you.
“Hollywood need not let Apple make all of the profit.”
Well, since 66 cents of every dollar sold thru iTunes goes to the labels/studios, I’d say there’s no real danger of THAT happening…
If Apple IS making all the profit off of Random Guy’s 34 cents then the studios are doing something Very Very wrong w/ their money.
The beta of Firefox loads MDN really, really fast. Especially when compared to Safari which dies a painful death trying to load MDN. Check out the beta of Firefox 3, which is the fastest browser I have ever seen on a Mac.
Yes, I know this has nothing to do with the story, but just seeing MDN load so fast, I just had to share.
“…mobile phone, but only 10% regularly use it to
watch video; just 6% regularly use it to watch live TV.”
Way too high. Less phones are video/TV capable than this or too expensive from phone carrier.
“I don’t feel that spending $13 dollars on the iTunes music store in order to get a DVD that I could buy for $5 or $10 somewhere else is reasonable since it’s in lower quality.”
How can the Apple content price be too low yet it costs more from Apple than a retail outlet?! Self-contradiction.
“Interoperability remains a major challenge—content purchased for one portable platform can rarely be used on another.”
Easily fixed – remove the DRM.
“The amount of high-quality content available is still extremely limited.”
Easily fixed – release more content for sale.
“Technological upgrades to networks and devices will likewise require substantial investment—operators and manufactures will not jump on board without some assurances of success.”
But they’re guaranteed failure if they don’t jump on board.
“Apple adapted this strategy to the digital age by offering content as a low-margin lure for hardware.”
Yet the cost per song is more than a physical CD-ROM, and a downloaded album remain the same cost as a CD-ROM. How is this low-margin again?
“The strategy has been a great success for Apple, but content producers have been less enthusiastic.”
The cost of sales and rentals closely matches current levels, plus making a sale on a portable device where previously no sale was made – why should this make producers upset? Were they upset when Sony sold a PSP movie too?
“Hollywood need not let Apple make all of the profit. If Apple is effectively using content as a loss-leader…”
Hollywood gets paid for the sale and rental. If they can’t make a profit when there are no pressing, transport, marketing and retail costs, maybe their expenses are too high.
“The free distribution of scenes, clips and made-for-mobile content will encourage ticket sales and DVD purchases.”
People don’t see the value in our product, so lets give bits of it away. Right…
“In the end, “advertainment” becomes content in and of itself and a profitable way to provide consumers something to watch when they find themselves in situations where a little diversion is welcomed.”
Since we all really do love to be diverted by advertising. Truly we do.
Amazingly their chart showing the countries that have the largest ‘Unauthorised video downloads’ are the same countries where Hollywood and Apple don’t sell legal downloads! And the US has the highest PPV (pay per view) and smallest piracy since the stores actually sell the content here! Duh!
Get a clue. People will buy it, but only if you sell it.
@ The Observer
Safari seems to load MDN fast enough on my Macs, especially when I block all the ads.
When are we going to see MDN optimised for the iPhone ?
if every DVD came with a (DRM free) track that was an iPod version of the entire film, i would stop buying movies from iTunes and start collecting DVDs. that simple.
….and i bet a lot other iPod/iPhone owners would too.
or they could offer ALL their films on iTMS for my iPod and Apple TV. i would buy a lot more movies that way too. and again, i am not alone.
so here is a thought…. what if they *gasp* offered both! i would be handing them my money in fist-fulls!
…but the movie studios aren’t that smart.
I don’t buy films-why would I when I watch them once?
I don’t care about the so called extra features, why would I care about the director or actors prattling on about what I am watching on screen?
I think rentals was a smart move on Apple’s and the Movie studios part.
iTMS DRM does not get in my way-I am not trying to steal content or share it-just watch it on my iMac or Touch-which I can easily do now.
It’s true that the iTunes Store is a “break-even leader” that helps sell Apple hardware. However, the iPod’s success is not dependent on the iTunes Store.
OK, I actually read the paper. I can’t believe these are “experts.” First, they try to perpetuate the myth that people bought iPod because of the iTunes Store. Second, they recommend that Hollywood do what it is already doing.
Interestingly, Google’s stats showed that most of the mobile phone users currently accessing content on the Internet are iPhone users. That’s because most iPhones users regularly use their phones to access the Internet.
Most users of other smartphones do not, because of limited mobile browsers and poor interface design. So from the perspective of the content providers, it’s basically all iPhones out there. Those other smartphone might as well not be there.
So Apple has once again put itself in a NO LOSE situation, where it has no real competition. If Hollywood succeeds in “leveraging” mobile content to sell their primary products, they will be doing so though iPhone and iPod users.
Just downloaded 3 movies from mininova, why, coz I can’t buy them, ffs, give me the facility to be legal and safe and pay the shilling here in the UK.
I want to give you my hard earned cash, help me here.
“How to use Apple to sell White Papers that are full of S–T!”
Obviously, these guys like bending people over and making them take it up the wazoo.
The point is, the Studios make “profit” off of iTunes. They don’t have to produce physical CDs. Marketing costs are way down. And they receive over 75% of the revenue. Apple takes $0.20 per track or something like $1.73 on a $10.00 album. Because of storage and bandwidth costs, Apple breaks even on THEIR revenue from the track. The Studio still makes money.
Please people, don’t act all puffed up and say iTunes is a break even game. BECAUSE it only is so far as APPLE is concerned. The Studios STILL make a profit. Use your heads. PLEASE.
“Parks Associates & The Entertainment Technology Center” are a bunch of FUDders. Really, they are just low life dinks trying to make a buck.
Entertainment will be the down fall of the West.
Hollywood is going to hold onto their utopian dream of PPV for everything video in much the same way (and for the same reasons – $$$) that the music industry just won’t let go of their utopian dream of endless revenue from music subscriptions.
We’re in for another long struggle, folks.
When you base conclusions on false assumptions you get a pompous piece of dreck like this so-called study. The truth is if Hollywood just cut a tad back on all the drugs they buy for themselves they would have plenty of profits. The fact is they make plenty of profits. They all use VERY creative accounting to cry poverty while the drive Porsches to their Malibu compounds.
I would think with such sad box office numbers etc., and the video game industry crushing them under their boot heels and leaving them in the dust, Hollywood should be more open minded about their future. And since when is Apple ‘profiting’? It’s pretty widely know they receive a pittance from media sales. Would be nice to se artists and content creators making ‘all the profit’ someday.
Can someone tell me how they manage to pretend that Apple “makes all the profit”… and still have the shares going downwards?
Something must be quite rotten with our financial system!
“Hollywood should similarly leverage content to promote sales of its flagship products.”
Another way of saying “bundling” as in sell a piece of crap with something that you want for an inflated price.
Apple was actually selling something you want with something else that you want.
Parks has all kinds of media and technology conferences, and Apple never sponsors or attends any of them. (There’s usually at least one Windows PC maker as a sponsor.) It must be frustrating for Parks.
As for their nonsense, how is getting 60 to 70 cents a song for doing nothing not a high margin business for the labels? And isn’t purchasing a DVD for a movie or a season of shows almost always cheaper than buying through iTunes?
So “why have consumers not been more receptive to portable video platforms?” Two answers: 1. Except for iPod and iPhone, most, if not all, products for doing so simply suck. 2. The labels have charged way too much per viewing (i.e look at cell carrier prices for viewing video and even at iTunes).
@Shen,
This is so simple it’s obvious – Which ultimately means that content producers aren’t going to do it on any large consistent scale.
“Entertainment will be the down fall of the West.”
And it shall be called, “Westworld” where nothing can possibly go worng.
There is nothing wrong with studios’ and labels’ profits from iTunes. The only thing “wrong” here is that studios and labels are rapidly losing control over the consumer. Apple is in the position to dictate how content should be sold. Not because they are monopoly and want to do it to maximise the profit for studios and lables; it’s because they have clearly figured out what consumers want. Apple has dragged labels and studios into the iTunes store (kicking and screaming), and today, one out of every nine dollars that labels are making comes from iTunes. By the end of this year, it will probably be one out of every seven. This is huge, because they hate being left out of the loop.
In the end, it is their own fault. They had no clue how do sell downloads. Their business is ran by bean counters. When CDs took over from vinyl, bean counters jumped at the chance to obliterate the concept of a single. Why spend more-or-less the same amount of money to produce a product that you can sell at less than half price? Regardless of the fact that consumers found it popular (I’m not paying for the filler; I only want the good songs), it was killed. Apple brought it back and it was obvious that they were right.
Most amazing thing here is that studios still believe they know better, even though Apple is actually making THEM money!
This whole report is nothing about money or profits; it’s all about power and loss thereof for the labels and studios.