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Hollywood is slowly destroying themselves if they fail to see the need for affordable online content.

|Includes:Apple Inc. (AAPL), CBS, DIS, GE, NWSA, SNI, TWX, VIA

There has been a lot of rumor and criticism from Hollywood on the dangers of affordable online content. This includes quite striking criticism of Disney and Fox for striking a deal with Apple to rent TV shows for $0.99 on AppleTV. And a perception that Apple is the enemy. For an example see: 

www.hollywoodreporter.com/hr/content_dis...

The content companies seem to think that $0.99 rental fees for TV shows is going to undervalue their content and jeopardize their cable TV income. I think this is mistaken and they are going down the road of the music industry despite (or because) the recent history of music industry sales (i.e. they are so desperate to avoid giving Apple an advantage that they are jeopardizing their future business health). AppleTV (and similar experiments with online purchase or rental) offer an opportunity for the industry. But only if they take their heads out of the sand, and actually offer prices that people want to pay. NBC, CBS, Viacom, Time Warner, Scripps, and others will suffer in the long term.

1. If an ABC viewer rents just 1 episode of a TV show a month from AppleTv (or similar), ABC gets more money from that viewer than they get from most cable companies (actually now they get $0 from the cable company but ABC are trying to change that). Having Apple rent a show for $0.99 should strengthen ABC's hand in negotiations with cable companies not weaken it. In fact average cable rates per customer per month per channel range from $0.01 to $0.99 for almost every channel (avergae ($0.20) with the exception of ESPN and Fox Sports ($2-5 for those). Most are about $0.25 per month.

See: http://mediamemo.allthingsd.com/20100308/hate-paying-for-cable-heres-the-reason-why/

2. As has been pointed out the issue is not cannibalizing DVD or cable sales (i.e getting $24 instead of $50). The issue is that the DVD or cable sales WILL be replaced by piracy. So the studios will have $50 turn into $0. Only last week a friend showed me how easily he downloads episodes of True Blood from utorrent. He does not pay for premium channels and refuses to. If the studios refuse to provide a competitive online price then I may join him so I can ditch cable.

3. I accept that there are some extra costs in going through Apple (30% cut) but this is probably lower than the cable companies cut. I also accept that a la carte will net less than bundled channels. But if the average (good) channel gets $0.50 per month per subscriber from cable companies then it should be possible to rent individual shows for $0.49. If a viewer watches just 4 shows per month on a channel, that channel will get 3 times what they get from cable. Trying to preserve robust cable income AND DVD sales AND sell online material at $2.99 a TV show is not going to work in the era of file sharing and fast internet.

4. Parenthetically, I HATE sports. Why do I have to pay the extortionate fees for sports channels in the bundled model? Once this model is cracked, I think the amount that professional teams will get from broadcast rights will fall dramatically. I'm happy to spend my money on high quality drama. The main reason I want to ditch cable is having to pay extra for stuff I NEVER watch. 


 



Disclosure: Long AAPL

Disclosure: Long AAPL
Stocks: AAPL, DIS, GE, VIA, CBS, TWX, NWSA, SNI