Blog Post

Is Renting TV Shows in 2010 Like Selling Bottled Water in 1970?

Who would ever pay for bottled water? While the history of selling bottled water from various sources goes back centuries, it wasn’t until the end of the 1970s that bottled water started catching on in the United States to become what it is today, selling 8.6 billion gallons for 28.9 percent of the U.S. liquid refreshment beverage market. So is Apple’s (s aapl) scheme to rent individual episodes of TV shows online at $0.99 a similar watershed moment? Let’s look at the facts.

Seasonal DVDs on Amazon

Most television seasons start in either August or September and run through April or May, resulting in a season of around 20 episodes. The average price of the top ten seasons on DVD from Amazon (s amzn) is currently around $30. This would put the price of an average episode somewhere in the $1.50 range. That’s the most likely price point the entertainment industry is clinging to when justifying alternate cost models for renting digital media through online delivery solutions like iTunes or Amazon’s (s amzn) video-on-demand.

One downside of buying seasons is that episodes aren’t available for sale until a season is over. However, in the end, the consumer owns the episodes they buy.

Broadcast and Syndicated Television

Cable and satellite television starts at about $50 per month for at least 200 channels, which provides access to most new and syndicated television shows. This would exclude exclusive access to episodes from channels like HBO (s tmx) and Showtime (s cbs), which would add to the $50 monthly access charge. It would also exclude any television series not currently being broadcast. What it does include is early access to the latest episodes as soon as they become available.

All distribution costs are included in the monthly fee, and revenues are further subsidized via advertisements. What’s hard to calculate is exactly how many episodes customers would reasonably be entitled to. There are likely multiple consumers per household and multiple TVs for simultaneous viewing.

Monthly DVD Rental Service

Rental services like Netflix (s nflx) and Blockbuster can grant access to about the same list of shows for about $25 per month, depending on how many DVDs you subscription level allows you to have out at a time. The number of shows one has access to at any given time is more limited than using cable or satellite. Shipping charges are included. You can also stream to your game console with Netflix for $8.99 per month, although that does incur some of the hidden costs of distribution, which I discuss next.

Hidden Costs of Distribution

In all of the above scenarios, the cost of distribution is absorbed into the price structure. Any online distribution system would likely be paid for by the consumer in the form of broadband Internet access. Broadband high-speed internet access alone is similar in cost to each of the aforementioned pricing options, not to mention storage. Hard drives, DVDs or the extremely expensive burnable Blu-ray discs. Not only do consumers have to pay for the means of distribution, but also some means of storage, though HD space is getting cheaper by the day and the price of external drives amortized over a year works out to virtually nothing.

Viewing Behavior Patterns

Now that we know the various tolerances for paying, and the hidden costs of online distribution, what about viewing preferences? For prime timers that have replaced thier VCRs with DVRs, following a television series is more like subscribing to a video podcast than purchasing a season of episodes on DVD. How much consumers are willing to pay for a season’s worth of episodes depends greatly on how many episodes each consumer can consume in a given month.

From $30 to own a full season outright, to somewhere between $25 – $50 per month to watch and discard as many episodes you can bear to watch. How does $.99 to rent a single episode measure up? At just one episode per day you are already at the similar costs of the alternatives, and that does not include the hidden costs of distribution and storage. So is it then worth it to rent a-la-carte from Apple in convenient individual packages, or is it still much better to just pay for the water hook-up represented by cable and Netflix and drink from the tap whenever you like?

Related GigaOM Pro Research: Three Reasons Over-The-Top TV Apps Will Beat Big-Cable

17 Responses to “Is Renting TV Shows in 2010 Like Selling Bottled Water in 1970?”

  1. MisterK

    At $0.99 an episode, I would rent, just so long as I can get the shows very close to when they air and they have ALL the shows I want (that includes HBO, Showtime, AMC, and all the regular cable networks). The biggest hangup for me giving up cable (and I did give it up for several months) is that I lost any sense of discovery. I couldn’t just flip to a channel and say “Why yes… I DO feel like watching a show about castles”. Everything felt like it had to be pre-planned – like I had to pick a few of my favourite shows, download them, and then be set with that.

    What I would love is a system where I have a gridded layout of all available TV channels (preferably in the world… but I’ll take what I can get) with some sort of Genius feature. Each cell of the grid would be playing a minute sample of each show and I could just Wii remote point to the one I want and click to tune in. Each show would start from the beginning and after 5 minutes of watching, I would be charged for the show.

    I might say “I feel like watching a documentary, but throw in some other stuff too”… Boom.. there’s my grid of documentaries.. some other random stuff thrown in for discovery. I’d have a huge selection and channel surfing (best of cable) and shows on my own schedule, paid for a la carte (best of web).

  2. I think the average person pays about $15 per month for Netflix (2 at a time). I have Netflix and figure I pay about $2 per disc on average, which comes to about $.50 per episode on average. I’ll stick with Netflix until someone else can top that price (and the high-quality customer service).

    • Netflix is a tough service to calculate an average cost per episode with. Some households may opt for a higher monthly rate, but there may be several individuals using the service in the same household. It also depends on how fast one can watch and return a disc. The point remains the same though, all of these other services are much cheaper than $.99 per episode, and none of them come with the added/hidden cost associated with broadband delivery.

  3. Guess I see two problems with this.

    First off, DVD seasons when on sale are less than $30. For example I have been buying up season’s of How I Met Your Mother and I am yet to pay more than $25 for a season and season 1&2 cost me a combined $20.

    Second, I wonder how DVR would fit into all of this. For example, my friends with DVR when they want to find an old episode of something just search for it and set it to record. Typically when you are paying for the 200+ channels there are reruns galore. And if you have a DVR there is no excuse to miss a show you want to watch.

    • Agreed, I tend to buy up the bargains as well. And if you purchase an entire series, the cost per episode can come down considerably. I also am a huge doctor who fan, and sometimes pay more than $20 per episode. For this post however, I looked at the average cost of the best selling seasons on Amazon.

    • True. However, if you can own the show for $0.99, like you can if you buy the DVD, and be able to watch it whenever and however many times you want, that would make it a good deal for me, worth spending my money on.

      In addition, I won’t have to buy the whole ‘album’; just the shows I missed/like.

  4. Big if on net neutrality and sip keeping a all you can eat model. Wireless is already moving away and with the FCC not being able to enforce net n. – we’ll see what happens

  5. A “rental” pricing scheme for viewing content would definitely benefit consumers who watch little TV and don’t care about whether it’s live, which most people with DVR’s would probably agree doesn’t really matter anyway and is actually a convenience. My biggest complaint with having “200 channels” is that I don’t watch 95% of them, but pay for them anyway.
    At $1 per show, (2) shows a night is still cheaper than many cable subscription plans.

    • With cable, satellite, over-the-air, netflix and blockbuster, there are no hidden distribution costs. In comparison, all of the on-line solutions for delivering episodes into the home require the consumer to pay for high speed broadband internet access. This additional cost does not make it as competitive. Again, I was comparing this proposed solution as a replacement for what the majority of households have in place today, not a supplement. Keep in mind that less than 30% of the United States has broadband internet access.

  6. Lots of folks will rent for $0.99 – it just gets billed to iTunes and doesn’t feel like “real money” (e.g. you don’t have to dig out a credit card). The real diehards will still shell out “real money” at the end of the season for the DVD or Blu-Ray with the commentary and added features. Or get the same features via Netflix, etc.

    It will be interesting to see how Apple deals with season passes / multi pass and HD vs SD pricing.

  7. I love the idea. If I miss a network show one night, I want an easy and cheap and flexible option to watch it later that week. Right now, I can pirate the episode or hope to find it online or buy it on iTunes. But I don’t want to own it, and I don’t always want to watch it on my computer. In fact, I often want to take it on the road with me, hence my missing it in the first place.

    .99 is a great price point. I will spend a buck on a lot of different things, even if they’re just temporary.

    • Provided the episodes are kept current and do not fall too far behind the original air date I would agree that $.99 is not too much to spend on a missed episode. To be fair though, I was comparing this as a complete replacement, not as a supplement. There are plenty of novelty gadgets out there that can supplement today’s entertainment centers. But can this proposed new system be used as a replacement?

      • Arjuna Jennings

        Geoffrey Goetz, you’re shitting on your own article. Comments are for the people readers. Are you a writer sir? To me it seems like your a pre-school teacher, and we are the little children that don’t quite understand your “Big Point.”

    • “If I miss a network show one night, I want an…”
      It’s called tivo. Fits your needs.

      No, seriously speaking, I think people will not want (for long) to search online stores merely for shows they missed from linear tv. They will probably shift to online consumption as a primary source rather than as fall back.

  8. If the iTV can access the iTunes App store, well, Netflix is waiting. So, a one time $99 charge for the device, and then just $8.99 per month, and this could work.
    If the iTV provides Internet access to the TV, with some kind of Apple designed remote like those one can get with the existing Apple TV, then the free content from ABC, CBS, etc. would also work.
    If the networks provide their own Apps for content distribution competing with Netflix, there you go.
    Don’t forget HULU….