This was posted over the weekend, but was lost due to the server problems:

I'm having a hard time understanding this. There are definitely some new expenses involved, including authoring, storage, and delivery, but these costs all have to be lower than their physical counterparts. There's no material costs, no manufacturing costs or investments, no distribution of raw materials or finished goods, no inventory sitting on warehouses or on shelves, all of the labor costs for producing/handling physical products is gone, etc.

Yet, rental and purchase prices are no less (and often much higher) than their physical counterparts. The exception to this is Netflix's service, but that's limited to SD content.

Is this a temporary condition, while the market changes? Is there an intrinsic value offered that consumers will be willing to pay a premium for? If, and when, will prices come down?

Scott

So the people that responded don't have to repost, I'll quote them here:I think its a temporary thing.... This whole download service thing is in its infancy and as such the studios are trying to figure out exactly how much we are willing to pay. you also have to remember bluray discs are also very expensive as well. Its a matter of the studios mistakenly thinking people will pay more just because its HD.

and netflix is an issue for now..... they have long said hd is in the works.

and i still say none of these services will be successful until we get that "next generation" pricing scheme. netflix is the closest to this now imo.... all they need to do is get more/better content and go hd. the other services all suffer from the same problem (in trying to copy the vod model). i still think the netflix model is what will ultimately be successful in digital distribution.all the costs you mention is such a very extremely teensy weensy miniscule part of the price of rental/purchase, the biggest thing being copyright issues (royalties, distribution rights etc). In such quantities, all of the non-copyright-related associated costs don't amount more than a buck a piece.Which is a LOT more than any copyright etc fake fees, right.

Let's not buy into the BS the MPAA feeds us, please.

OP, your answer is: greed. Pure and simple greed, just like in every story where the MPAA/RIAA mob is involved. Thankfully they are dropping like flies, can't wait to see them gone for good, forever.As much as I want to pay for MUCH cheaper downloads, royalties and distribution rights have to be fulfilled. What's more appaling is actually music downloads. $10 for entire album when the production cost is far far far lower than movie production is ridiculous.

PS: the biggest chunk of profit (in percentage) actually goes to the storeowner. $4 profit for a $20 retail pricing is ridiculous. Even the artist and studio combined don't make that much per copy.In realty it boils down to politics and who's palms are getting greased. I do believe that netflix is in the best position because it already offers free downloads with a monthly fee.I think I got everybody (this was all cut and pasted from Google's cache).

So, based on this, where is pricing headed? Do we know what the market will support? Is there a sizeable enough segment willing to forever pay a premium for the simple convenience of downloads, even while sacrificing quality? Will the Netfix AUCW (All You Can Watch) service become the norm for lower-demand titles? Will there always be a premium price for HD content, or will it become the standard?

Or, is it too early to make any kind of prediction where this will end up?

I'll guess that prices will have to come down for downloads, or prices will have to go up for physical rentals before we will see any kind of real shift in distribution.

Scott

I don't see how greed is an issue. Companies are not making much at all on downloaded video. I think I remember reading that Disney made $40mm for the entire year on having its shows on iTunes.

Here it is:

http://www.macnn.com/articles/08/03/12/itunes.revenue.for.disney/

Disney, as the launch partner for the iTunes video store, has seen approximately $123 million from the venture since its inception, which is a drop in the bucket when compared to the company's $35 billion in revenue last year, but is not without its upsides. Money made from the iTunes video store requires very little maintenance and planning, since companies don't have to market the product, while extraneous costs such as boxing, shipping, and other elements in distribution are not present.

The Silicon Alley Insider reports that Disney sold 4 million movies and 40 to 50 million videos through the iTunes store since its launch. Based on research by Pali Research, Disney is said to make approximately $14.50 per movie sale, and an estimated $1.44 off each video. Disney's goal for digital revenue is $1 billion for the year.

So, based on this, where is pricing headed? Do we know what the market will support? Is there a sizeable enough segment willing to forever pay a premium for the simple convenience of downloads, even while sacrificing quality? Will the Netfix AUCW (All You Can Watch) service become the norm for lower-demand titles? Will there always be a premium price for HD content, or will it become the standard?

Or, is it too early to make any kind of prediction where this will end up?

I'll guess that prices will have to come down for downloads, or prices will have to go up for physical rentals before we will see any kind of real shift in distribution.

Scott

I have the Netflix Roku box, and I would say that prices for their AUCW service have to go up as their content availability goes up. Right now, it's absurd to pay no extra for the number of titles they have available, although they're severely lacking in top titles.

It's actually a fantastic service in that anything that is offered is available at any time. If they went to their whole catalog that way with HD, it would be worth well north of $50 per month to anyone who would use it IMO. It would also virtually kill premium cable channels, VUDU, and Apple TV.

IF, and it's a big IF, the future has everything on demand for a set fee, the days of owning media will just about be over. In the past week, I passed over purchasing two titles on disc because of the Roku. I have 53 titles in my instant que right now, which along with my three rental discs, will keep me occupied for quite some time.

It's actually a fantastic service in that anything that is offered is available at any time. If they went to their whole catalog that way with HD, it would be worth well north of $50 per month to anyone who would use it IMO. It would also virtually kill premium cable channels, VUDU, and Apple TV.

IF, and it's a big IF, the future has everything on demand for a set fee, the days of owning media will just about be over. In the past week, I passed over purchasing two titles on disc because of the Roku. I have 53 titles in my instant que right now, which along with my three rental discs, will keep me occupied for quite some time.

this is what I want in my media month fee (rather than what comcast has for example). only caveats are bandwidth caps :( and HD quality compromises (can't be worse than comcast though since it doesn't have to get pushed out in decrepit, low-bitrate mpeg-2). So I figure this model is win-win from the standpoint of what I get (or don't get) now from comcast. I'd miss some discovery network shows but that's about it as everything else that is broadcast eventually comes out on DVD anyway these days.

And as to the OP- I'm going with greed and an immature market as well. Stupid people will pay 99 cents a track for compressed, DRM-ridden tracks from itunes so maybe the studios are taking this as their default standpoint.

I am patiently waiting for the 360 fall update to get my Netflix streaming (although I use it now on my laptop on business trips).

While it is currently free to subscribers, it's silly to think it will stay that way once HD comes on line. They are already (or in the very near future...like this month) charging a premium for Blu-Ray, which was free, so to think they will keep this watch-instantly service free is kindof naive. That being said, I nearly picked up the Roku box in hopes that early adopters might be grandfathered in and waived the fee if/when it becomes reality. In fact, I still should order the box just in case.

Finally, as others have pointed out, IF they can rival AppleTV's and Vudu's HD offerings, but include it in the current per-month pricing structure, rather than per-movie charge like AppleTV and Vudu do (which is way overpriced) they'll have a huge advantage, and I'd be willing to pay quite a bit for the service.

Of course, that would rely on my ISP (Comcast) not imposing bandwidth caps, and the price/month being somewhere around $50/month with at least 20-25 movies included (preferably unlimited of course), and it would also have to include my current 3-at-a-time physical media plan. If it was much more than $50, I'd have to think about it a bit. Guess it would depend how much content was available, and if I could watch the new movies that sit in "very long wait" status in my queue for a month or so.

If they would structure the price with only X number of movies included per month, I'd rather see some kindof weight added to TV shows (which can be only 20 minutes for a sitcom) and wouldn't want that to count as an entire rental.

Those are just some thoughts I'm having about it. Hopefully we'll know more, as I would think/hope they'll have the HD stuff ready when the 360 update comes around.

Maybe Im different but I would not be willing to pay anymore than what a current "plan" costs or maybe a touch more. 30 at max for me. No way Id ever consider paying 50 bucks per month for it simply because w/o live events it cant replace cable (which I would have to have)

I do think they should bring online to its own tier (i would think a good combo would be to offer it at 25/month standalone or an extra 10 bucks/month as an upgrade to any current netflix plan)

I am in the IT field and bandwith isnt cheap for large companies... you look at a data center and the costs involved with this stuff is pretty high.

energy, staff, servers, storage, and bandwith all cost money.

I am in the IT field and bandwith isnt cheap for large companies... you look at a data center and the costs involved with this stuff is pretty high.

energy, staff, servers, storage, and bandwidth all cost money.How do those costs compare with production, storage, facility maintenance, transportation, handling, and replacement costs of their physical counterparts?

Is there anyway to do this on a cost per viewed-movie basis?

Intuitively, it just doesn't seem possible for all of the physical costs to be higher than their digital counterparts.

Scott

I'm having a hard time understanding this. Studios want to protect DVD/Cable VOD.

In theory, delivering movies via the Internet should save the studios money and allow them to sell films for less than retail outlets. But Hollywood fears cannibalizing its existing revenue streams. In addition to DVD sales, the studios are also trying to protect video-on-demand sales offered by cable companies. U.S. consumer spending on video-on-demand is growing sharply but off a relatively small base, with Adams projecting it will grow 23% this year to $727 million.

http://www.forbes.com/technology/2007/06/11/itunes-movies-apple-tech-cx_lh_0611applemovie.html

How do those costs compare with production, storage, facility maintenance, transportation, handling, and replacement costs of their physical counterparts?

Is there anyway to do this on a cost per viewed-movie basis?

Intuitively, it just doesn't seem possible for all of the physical costs to be higher than their digital counterparts.

Scott


Without trying to sound like I am defending the digital counterpart… I can honestly tell you I don’t know the costs involved for comparison purposes but the datacenter size is EXTREAMLY expensive.

Physical media may be stored in a large warehouse with minimal power consumption, no cooling, and cheaper labor staff doing shipping and receiving.

The digital counterpart needs a complete data center, with a HUGE cooling load, many servers, expensive IT staff to keep it going, maintenance costs are also high since changes are being made, hard drives die and are replaced, bandwith is being used… I wish I could find the article but it shows some of the cooling costs of your average data center… and it’s very high.

A part of me almost wants to say the digital counterpart would cost more money. To have a movie sitting in a box in a warehouse does not cost much. To have a movie sitting in a multi-million dollar data center, powered on and ready to go 24/7 cost more. Unless they are moving huge volume of digital rentals, it wont make sense.

I bet there are cost savings going both ways, but I think they are looking at the digital side as a convenience to the consumer… I rather have my movie come via wire than me go and pick it up at the video store. People pay for technology and convenience.

I like what Jobs is trying to do. iTunes reportedly wants to sell movie rentals for $2.99 a pop with the ability to play each title for 30 days

Studios want to protect DVD/Cable VOD.

That's because they still think they're in control when they are actually competing with "free" content from torrent sites.

Japanese animation ("anime") has contended for years with the problem of competing against freely-distributed, though obviously illegal, "fansubbed" material. Fansubbing employs teams of volunteers who obtain raw programs from Japan and overlay subtitles in other languages. In the anime world, the cost of legitimate, downloadable material runs about $4/hour. This is still uncharted waters for the American licensors of these shows, but FUNImation (http://www.funimation.com/f_index.cfm?page=vod) seems committed to bringing out some of its licensed material at $1.99 per episode. Moreover these are "download-to-own" files (in WMV) though they are encumbered with DRM. Still this makes a 26-episode series cost about $50, which is often a third the cost of the equivalent series when released on DVD, and you get to keep the files indefinitely.

Of course, the audience for anime skews young, so a large portion of this market has little disposable income.

This was posted over the weekend, but was lost due to the server problems:

I'm having a hard time understanding this. There are definitely some new expenses involved, including authoring, storage, and delivery, but these costs all have to be lower than their physical counterparts. There's no material costs, no manufacturing costs or investments, no distribution of raw materials or finished goods, no inventory sitting on warehouses or on shelves, all of the labor costs for producing/handling physical products is gone, etc.


The cost of goods sold has nothing to do with the upper limit on what consumers get charged. It only sets a lower limit.

In hotels, there's a substantial market of people willing to pay $7-$9 for the convienence of watching a pay-per-view movie on their room's TV instead of almost nothing (the Netflix subscription divided by number of disks) to watch a DVD they brought with them on their laptop.

On-line, there are enough people who'll pay a couple dollars per TV episode or $4 a movie to download and watch something now instead of finding a free bootleg copy or waiting for it to be released on DVD and delivered to their door.


Is this a temporary condition, while the market changes? Is there an intrinsic value offered that consumers will be willing to pay a premium for?


Sure. Mostly you don't have to wait for it to be released on DVD. After it's released you don't have to wait for it to be delivered.

Without trying to sound like I am defending the digital counterpart… I can honestly tell you I don’t know the costs involved for comparison purposes but the datacenter size is EXTREAMLY expensive.

Physical media may be stored in a large warehouse with minimal power consumption, no cooling, and cheaper labor staff doing shipping and receiving.

The digital counterpart needs a complete data center, with a HUGE cooling load, many servers, expensive IT staff to keep it going, maintenance costs are also high since changes are being made, hard drives die and are replaced, bandwith is being used… I wish I could find the article but it shows some of the cooling costs of your average data center… and it’s very high.

A part of me almost wants to say the digital counterpart would cost more money. To have a movie sitting in a box in a warehouse does not cost much. To have a movie sitting in a multi-million dollar data center, powered on and ready to go 24/7 cost more. Unless they are moving huge volume of digital rentals, it wont make sense.This only considers the warehousing costs, though. It doesn't consider all of the costs to create the discs, packaging, etc. It also doesn't include the value of the goods that are just sitting in inventory, tying up money that could be used for other purposes.
I bet there are cost savings going both ways, but I think they are looking at the digital side as a convenience to the consumer… I rather have my movie come via wire than me go and pick it up at the video store. People pay for technology and convenience.That is believable. I guess we'll have to wait and see what consumers really want.

Scott

The cost of goods sold has nothing to do with the upper limit on what consumers get charged. It only sets a lower limit.Cost of goods determines profits for the company, the market sets the selling price. So far, there's not enough people buying to know what the market will support. If prices start out, and remain too high, they may never catch on.
In hotels, there's a substantial market of people willing to pay $7-$9 for the convienence of watching a pay-per-view movie on their room's TV instead of almost nothing (the Netflix subscription divided by number of disks) to watch a DVD they brought with them on their laptop.That's true, but there a couple of reasons for that which don't directly apply to the normal market. Some of the releases aren't available on DVD yet. Some of these people are on vacation, and will justify the higher costs because of that. There is a convenience factor involved, since they don't need to lug around a laptop, video player, or DVD.
On-line, there are enough people who'll pay a couple dollars per TV episode or $4 a movie to download and watch something now instead of finding a free bootleg copy or waiting for it to be released on DVD and delivered to their door.This assumes that the online services will have a delivery advantage over the physical counterpart. If studios time them to come out weeks earlier on download, it could be seen as an advantage over physical disc distribution. It also assumes that the movie can be downloaded faster than it can be shipped. That may or may not be the case depending on the service and the customer.

Depending on the service, it's not impossible for the rental disc to arrive on the same day that it's released in stores. (Your mileage may vary, though.)

Scott

Anyone here ever hear of overhead and volume?

Bottom line too much overhead, too little volume.

How do those costs compare with production, storage, facility maintenance, transportation, handling, and replacement costs of their physical counterparts?

Is there anyway to do this on a cost per viewed-movie basis?

Intuitively, it just doesn't seem possible for all of the physical costs to be higher than their digital counterparts.

Scott

I worked for years in a paper publishing arm of one of the largest publishers. I helped engineer and manage the transition from paper publishing to electronic delivery. We did it for many reasons but timely delivery and cost were two of the reasons. For us there was massive year-to-year savings in transitioning to electronic delivery from paper delivery.

Warehousing costs for paper publishing are extreme. Just a few of the many costs: land, property taxes, land leases, construction costs, maintenance of the buildings and equipment, there were personnel and associated pension/medical costs, there are shipping and delivery costs, packaging costs, costs of return and restocking costs. Warehousing over years of publishing can be prohibitively expensive.

Now, DVD warehousing is not identical. It is a fraction of the warehouse size. Keep the DVD master and stamp it at will. But many of the other costs are comparable.

In fact we moved most of the old paper onto tape (digitized the paper). When a customer wanted an old paper volume, we retrieved the tape and published the volume (for a cost of course).

We found one key to cost efficiency was in retention policies. How and when to transition to different types of media is based on many cost issues such as bandwidth, demand for the specific volume, and many many other issues. So, a well thought-out and managed hierarchical retention / delivery system can have a greater delivery and lower costs than most digital (video/movie) companies execute on today.

Prior to a few years ago, when energy became such an issue, everyone wanted to throw as many servers as possible at the problem... because it was a simple and cheap solution at the time.

Times change. Energy costs have sky-rocketed. Managing data centers full of servers is the challenge.

The media content delivery business is still evolving. Everyone is scrambling to get into the business now with whatever they can because the edge is often to the early bird. Perfect solutions are not often part of that solution space. More well thought-out solutions will show that costs can come way way down. However, cost considerations are not always major issues for bleeding edge technology. Finding the inflection point, where a profit can be made and consumers will purchase, is the goal (and often the gamble - ask a VC).

But at the end, will a more mature industry translate into cheaper costs - yes. Will that get to the consumer as quick -not a chance. Think about how Sony is going to recoup the cost of the Blu-ray war and the ongoing gaming platform war.

And this is just another view of one part of the cost equation, not the complete picture.:)
LT

I worked for years in a paper publishing arm of one of the largest publishers. I helped engineer and manage the transition from paper publishing to electronic delivery. We did it for many reasons but timely delivery and cost were two of the reasons. For us there was massive year-to-year savings in transitioning to electronic delivery from paper delivery.

Warehousing costs for paper publishing are extreme. Just a few of the many costs: land, property taxes, land leases, construction costs, maintenance of the buildings and equipment, there were personnel and associated pension/medical costs, there are shipping and delivery costs, packaging costs, costs of return and restocking costs. Warehousing over years of publishing can be prohibitively expensive.

Now, DVD warehousing is not identical. It is a fraction of the warehouse size. Keep the DVD master and stamp it at will. But many of the other costs are comparable.

In fact we moved most of the old paper onto tape (digitized the paper). When a customer wanted an old paper volume, we retrieved the tape and published the volume (for a cost of course).

We found one key to cost efficiency was in retention policies. How and when to transition to different types of media is based on many cost issues such as bandwidth, demand for the specific volume, and many many other issues. So, a well thought-out and managed hierarchical retention / delivery system can have a greater delivery and lower costs than most digital (video/movie) companies execute on today.

Prior to a few years ago, when energy became such an issue, everyone wanted to throw as many servers as possible at the problem... because it was a simple and cheap solution at the time.

Times change. Energy costs have sky-rocketed. Managing data centers full of servers is the challenge.

The media content delivery business is still evolving. Everyone is scrambling to get into the business now with whatever they can because the edge is often to the early bird. Perfect solutions are not often part of that solution space. More well thought-out solutions will show that costs can come way way down. However, cost considerations are not always major issues for bleeding edge technology. Finding the inflection point, where a profit can be made and consumers will purchase, is the goal (and often the gamble - ask a VC).

But at the end, will a more mature industry translate into cheaper costs - yes. Will that get to the consumer as quick -not a chance. Think about how Sony is going to recoup the cost of the Blu-ray war and the ongoing gaming platform war.

And this is just another view of one part of the cost equation, not the complete picture.:)
LTThanks for the insight, Tom.

For downloads to really take off, won't the prices have to come down, though? There are customers for these products, but the costs are too high for mass-consumption, even for those that have the needed infrastructure.

I would guess that their main competition comes from physical rental services (lower cost and higher quality) and the peer-to-peer sites (zero cost, quality?). I'm certainly not advocating illegal file-sharing, but that has to be recognized as siphoning off the legitimate marketplace.

For mass-acceptance, shouldn't prices come down while they find ways to lower costs? Or is this so low into the projected growth curb that significantly increasing sales isn't even part of the equation yet?

Scott

Thanks for the insight, Tom.

For downloads to really take off, won't the prices have to come down, though? There are customers for these products, but the costs are too high for mass-consumption, even for those that have the needed infrastructure.

I would guess that their main competition comes from physical rental services (lower cost and higher quality) and the peer-to-peer sites (zero cost, quality?). I'm certainly not advocating illegal file-sharing, but that has to be recognized as siphoning off the legitimate marketplace.

For mass-acceptance, shouldn't prices come down while they find ways to lower costs? Or is this so low into the projected growth curb that significantly increasing sales isn't even part of the equation yet?

Scott

Oh, I totally agree for the big rocket take-off and massive uptake, the prices have to come down - that is not the complete answer however.

I would even say this is true of Blu-ray. Sony has already weighed in that they do not intend to lower their Blu-ray prices, but they must and likely will and will have to do something for Xmas time. If Sony doesn't do something, then competition will begin to eat their lunch again. Sony does have a good hedge for Blu-ray with their platform and their content. They will be winners somehow, it remains to be seen how...

I thought TWC with Roadrunner cable and TimeWarner content would be bigger winners and make a real difference, but they are struggling. Even though their VOD content is often $1. cheaper than others, I would still prefer the others. The TWC infrastructure is killing their content delivery; FIOS appears to be eating their lunch on quality and delivery. You would think that with TWC controlling the pipeline and controlling content would ensure greater quality and greater delivery at great prices... NOT true. I have repeatedly tried to watch TWC VOD and have given up; I've yet to experience "smooth" delivery and control. Take a look at any of the TWC forums on AVS and you will see my view is "mild" in comparison to others' views. I often think TWC does not have the "will" to win in this space, they appear to just want to compete and make some profit, not dominate.

Just cheap movies will not win the day. Having watched movies on TWC movie channels for years I have recently started using Vudu. For me, Vudu is winning by a mile. I have begun to consider stopping my TWC movie subscriptions.

What has gotten ironic for me is that I will watch a movie on Vudu, having paid for it only to see it a few weeks later on TWC movie channels for "free". I have not and will not stop watching Vudu movies however; there are many advantages otherwise.

And I really like the Vudu $.99 movies. That price point fits for the majority of viewing I do on the spur of the moment. The $.99 are not first run but the movie quality is very good, the delivery is excellent and convenient, and as most say, the UI is incomparable. Most of the $.99 are "reruns" for me since I watch so many movies, but some are new to me. I watch several of these a week in addition to the other Vudu offerings.

With so many competing venues, which you point-out, something else has to give which will be more decisive than where we are now.

As far as I can tell, the two biggest complaints against Vudu appear to be price of the set-top box and the fact it isn't Blu-ray/HD (everyone everywhere complains about the other price issue, no one is really dominant there). Will we have to wait for high-speed Blu-ray quality delivery for a truly dominant player to emerge? If a company offered 100,000 movies of good SD quality at $.99 instantly delivered to your home, would that make a difference? Would the movies have to be first run or?

BTW, I am not an investor in any of these. I will gladly accept any winner into my home. :)