Blog Post

Do Consumers Really Want to Pay for Media?

The music industry has made quite a stir about piracy and downloads. Pay TV providers have fought to protect their service bundles in the face of a la carte proposals. And Apple has built a nice business with iTunes. But how much are consumers really willing to pay for media?

Packaging is critical to the way media is sold, and it takes various forms, many of which are “bundles” of media products. For example, if the purest form of recorded music is the individual song, then an album is a bundle of songs marketed and sold together. The movie industry relies on a bundle that includes theatrical release, DVD distribution and then syndication on television — the movie bundle is enforced with time “windows” that take advantage of the time value of media. Most people want to see movies when other people are talking about them, and waiting a year for the DVD release simply isn’t acceptable.

And then there’s pay TV, a business built on bundles — and bundles of bundles. Consumers think of watching individual television shows, but TV programs are bundled together into something we call “channels” which are then bundled together into “packages” for which we pay on a monthly basis.

The pay TV industry has fought numerous challenges over something called “a la carte,” which would allow consumers the opportunity to buy individual channels of programming outside the packages normally available to us. Under these proposals, people would still have to buy bundled services in the form of the television networks, but many have referred to this idea of media consumption as “paying by the drink.”

Whether you call it unbundling, a la carte or paying by the drink, it’s all the same thing — consumers buying precisely what they want. No more. No less.

But if we look at the $553 billion U.S. digital home marketplace, consumers don’t spend that much money outside of bundles, as described in a new GigaOM Pro report (subscription required). Sales of individual media products — such as songs, albums, video games, software, DVDs, etc. — occupy less than 15 percent of consumer spending. Each month, the average U.S. household spends close to $250 on the quadruple play services that include: fixed-line telephony, wireless telephony, pay TV and Internet access. By comparison, that same household spends $13.75 buying music, $16 buying DVDs, and $70 on pay TV services.

Herein lies the paradox. When we have the choice to spend for exactly what we want, we spend less. But given the choice between assembling our own bundle and buying one that someone else has built, we choose the latter. I can’t count the number of times I’ve given up on the dollar menu and selected a “combo” meal just to get through the line at the local drive-through. When the music industry was selling us albums, we’d buy an entire CD to get one or two songs. In a world of Internet downloads, we spend a couple of dollars on the one or two songs we know and give up on the rest of the album.

And in pay TV, we know that subscribers fall off quickly when premium services, such as HBO or Showtime, cost extra…which they inevitably do. The same holds for Internet video — the iTunes audience (paid download) for a television show is often 1 percent of the Web video (free Internet stream) audience for the same program.

In a media-saturated world, there are too many choices, and consumers seek simplicity. Given the choice between a bundle that fits pretty well and a perfect fit of a la carte downloads, people will continue to choose the bundle.

Daniel Taylor is the lead analyst at Big Picture and the author of “The Ongoing Battle
for the Digital Home
” released today on GigaOM Pro (subscription required).

5 Responses to “Do Consumers Really Want to Pay for Media?”

    • I think you both have valid points, but addressed at specific distribution mediums – the Internet distribution model for content, across any type be it news, video, music, is still being shaped for pure ad-supported. There is no doubt while viewership is going up, the economics of Internet ad-support distribution is making is challenging, particularly for news services who have traditionally be ad supported.

      Those electronic mediums such as broadcast TV and radio continue to be successful using primarily ad-supported (though most of these broadcasters today get a health revenue stream through cable and satellite fees), but even these firms are grappling with how ad-supported content in a broadcast world will do in the world of over-the-top distribution.

      Great conversation and points!

  1. Of course, the alternative is content providers giving away their stuff for free and making their profits off of corporate sponsors (how TV was funded during its “Golden Age”), product placement advertising, etc.. Click on my name for a white paper I did in 2003 that’s titled “P2P Revolution: peer-to-peer networking and the entertainment industry”. I think it is still valid in its main points.