Great Article on how studios need to view online market - Average Revenue Per User - AVS Forum
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post #1 of 5 Old 03-06-2009, 08:49 AM - Thread Starter
 
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A new business model for a new medium. Think of more all-you-can-eat offerings. Instead of focusing on profit per unit (movie/episode, etc), think average revenue per user (ARPU) via subscription services.



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Are the major media companies finally starting to embrace the disruption to their business wrought by digital technology? Alas, I wouldn't go that far. But there are signs that some of them are at least starting to come to grips with it and its implications for their future. A recent case in point was the interview with Disney CEO Bob Iger at the Deutsche Bank Media & Telecommunications conference this week, in which he provided what, for the head of a public company with recession-battered shareholders to consider, was a pretty progressive perspective on the state of the business, particularly with respect to the home entertainment sector.

The essence of his comments was that the gross margins generated by media companies' traditional transactional business model are gone, probably for good, and that companies like Disney--and their shareholders--are simply going to have to adjust to a life of lower-margin, service-based business models.

There's a pretty big debate about how moving video content into a VOD or rental model is margin destructive and revenue destructive, so not only are margins going to go down but the total revenue we may reap from that business is going to go down compared to the business we're used to. But what people aren't realizing is that the business we're used to may be over [nervous chuckle] and the business we're going to see may be quite different.
[...]
Now the music industry made a decision a long time ago that they were going to try to hold pricing on a multi-song CD and not move content cheaply one song at a time or ala carte or whatever to new technology platforms. I would argue they had a better ability to monetize the new platforms even though it did not feel right to them, I think they were comparing it to what was and not what was going to become.
Not a terribly original thought, to be sure. But Iger then segued into this:

I think we make mistakes when we try to get in the way of technological change. And I'm not accusing anyone else of doing this, but we're really trying hard to figure out ways to make it work for us, to not fight it from happening. And I really believe we'll get to a point where there will be growth in what I'll call an online rental model that might be better than the alternative, which is piracy. Not necessarily as good as we're used to but it may end up being, from a volume perspective, pretty damn good, still.

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I read it as Disney starting to think about its media businesses in terms of average revenue per user (ARPU) instead of profit per transaction, and all that that implies with respect to its cost structure, distribution strategies, revenue recognition and relationships with distributors:

When it comes to moving content onto new platforms, there's an inevitability to it, there's also an inevitability to tension being created between traditional partners and what I'll call new partners. You can't please everyone all the time but we're trying to maintain some sort of equilibrium because we're still getting a huge amount of value from our traditional partners, whether they're big-box retailers or multichannel [video] provider.
Disney may be better positioned than other entertainment companies to exploit subscriptions because it has a genuine brand it can leverage across multiple products and services and multiple platforms. It also has more experience building businesses around ARPU thanks to its theme parks, which are machines for sucking money out of users.

Eventually, though, if not sooner, all the media companies are going to have to start figuring out how to maximize revenue per user rather than profit per unit, or profit per title. Digital platforms, and the Internet in particular, are not hospitable to sales-based business models, and no amount of DRM, copyright legislation or lawsuits will ever make it more than marginally more hospitable.

Iger was at least seems to be making the right noises, even if Disney hasn't fully embraced the sound.

http://www.contentagenda.com/blog/15...180041618.html
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post #2 of 5 Old 03-06-2009, 08:55 AM - Thread Starter
 
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Just as a fun game to go along with the above... How much would you pay (per month) for all-you-can-eat access to Vudu's catalog, including HDX titles?

I would say $30/month. I am sure I would go crazy the first couple of months before settling into a more typical 5-8 movies a month based on my schedule.
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post #3 of 5 Old 03-08-2009, 12:05 PM
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I really hope that all of the content providers are looking very closely at their options, and making plans for the future.

The article mentions what the music industry went through, and there are parallels here.

Back when the download market was starting to take shape, I remember seeing an interview on either The Screen Savers or Call for Help (how I miss TechTV), with a guy who was involved with the Canadian music industry. At the time, he was hyping a study that was done that would have dramatically dropped the price of digital downloads of music to about $.05 per song. Yes, you read that right, just a nickel per song.

The rational was two fold: 1) It would attract lots of new listeners to lots of new music. When presented with these pricepoints, consumers would eat up all kinds of music from artists and genres that they wouldn't normally purchase. That would increase in revenue for all parties involved. 2) At $.05 per song, the pirated music market would just about dry up. Most people are more than willing to pay for content, up to a certain price. At five cents, almost everyone would see the value in a legitimate copy, if only to avoid the hassle of finding alternative sources, while at the same time knowing that they are obeying the law.

The combination of those two factors were projected to increase revenue.

Unfortunately, the music industry chose to stick with higher download prices. Since that time, it's estimated that only 1 in 40 music downloads is legitimate. That's a huge market that has been lost (maybe forever) to the music industry.

The internet has forever changed how people look at digital content. Movie and video providers need to keep this in mind when determining pricing. Most people will gladly pay to get their content, but the value of that content is diminishing over time. Price it too high, and people will find other methods of getting it. Add to that the absolute glut of content that grows and grows each year, and you have some interesting business decisions to contemplate.

The old distribution and pricing models are dying. Let's hope that the new ones will benefit both the content owners and the customers equally.

Actually, they'll have to.

Scott

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post #4 of 5 Old 03-08-2009, 08:18 PM - Thread Starter
 
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Agreed. I think Netflix has forever changed the business.

The all-you-can-eat offering is very compelling. I think people would eat up a single subscription if can get you the same level and quality of content as from Netflix snail-mail. The studios should be happy as it is the same basic content people get today anyway, but delivered in a mechanism that does not require manufacturing plastic discs.
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post #5 of 5 Old 03-08-2009, 11:13 PM
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In the future, Comcast will rule everything and put iTunes and Netflix out of the digital distribution business. Cash out your stock while you can. The market is saturated already and Apple's CAP-M has decreased slowly but surely. Netflix will sustain itself, but as a proxy-entity of a distribution consortium.

You can already see it happening.

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