Highs and Lows for Univision at 8 PM

1) April 10, 2009 (Good Friday): 1.5 rating for Cuidado Con el Angel. I am not completely why this telenovela dropped this much that day (37% on a week to week basis). It may have something to do with the fact that it was Good Friday, and that many Hispanic Catholic families were at church. This might not be the case since Telemundo dropped only 16% from the previous day and 28% from the previous Friday. Angel’s bigger decline might really indicate a poor performance. The telenovela does continue to have lower audience levels until on July 3, upon which the time period improves with the new novela En Nombre del Amor.

2) October 5, 2009: 3.0 rating for the finale of Mañana Es Para Siempre (average for the night). This night a special three hour finale for wildly popular 9 p.m. telenovela Mañana Es Para Siempre was programmed. More about this later.

3) November 5, 2009: 3.0 rating for Latin Grammys (average for the night). This demonstrates how Hispanic-themed awards specials can greatly improve a time period, by about 50% in this case.

4-5) November 26 and December 31, 2009 (Thanksgiving and New Year’s): 0.8 and 0.9 ratings for special holiday programming. These drops of roughly 50% are parallel to what Telemundo experiences during the same nights (see points 10 and 11 below). The low audience levels may be due to either the holidays lowering television viewing or lack of interest in the special programming. I don’t have information for Christmas for comparison.

6) February 18, 2010: 2.9 rating for Premio Lo Nuestro (average for the night). Just like the Latin Grammys, this award special greatly improved the time period’s ratings.

Highs and Lows for Telemundo at 8 PM

7) April 23, 2009: 1.0 rating for Premios Billboard. This 50% bump is the same that the Latin Grammys and Premio Lo Nuestro gave Univision.

8 ) June 24, 2009: 1.0 rating for soccer match between Mexico and Venezuela. Games or specials, often programmed by Telemundo, boosted their ratings between 20% and 100%.

9) October 14, 2009: 1.2 rating for soccer match between Mexico and Trinidad & Tobago; another big winner.

10-11) November 26 and December 31, 2009 (Thanksgiving and New Year’s):  0.4 and o.3 rating for special holiday programming.

My presupposition of the iPad on the left and Steve Jobs’ actual product on the right.

The iPad’s intuitive user interface will appeal to less tech-savy users. As mentioned in the January 31 podcast of Six Pixels of Separation the device will remove a lot of “metaphors and architecture… inherent to laptops that deter many older users from using those devices.” For similar reasons, as well as its compelling gaming and media apps, the iPad will also attract younger users, even perhaps pre-adolescents. It was probably with this segment in mind the Paint App was demoed during the iPad presentation. The next generation of children will probably be mastering a touchscreen interface long before a keyboard or mouse. With its lower price point and conformability for recreational purposes, I also think that the iPad will become the cool, if not the standard, educational tool for younger users, replacing laptops as the device students tote from classrooms to recess. Therefore it should come as no surprise that a recent AdMob survey indicates that the Pad will be particularly popular with both the young and the old.

I also believe that the iPad will find fans in other segments such as at-home moms or dads, and sales people; as said on the Marketing for Coffee February 3 podcast, “(the iPad) will be a sales machine in a box… a good presentation tool,” echoing my similar prediction in June.

Although these segments will likely provide the initial demand for the iPad, I sincerely believe that it will find a very broad acceptance in the long run, and that it will become the device for consuming media on a personal level, just as a television is the device for group consumption. How often have you seen somebody use a laptop or BlackBerry while watching television? It is pretty much commonplace but neither device is ideal- a laptop is large and sometimes unwieldy, and a BlackBerry or any other “phone” device  is too small and limited. Although the iPhone and iTouch greatly expanded the range of the latter category, they are still a bit too small. The iPad is the “Goldilocks” solution that fits the situation just right.

So if the iPad is so great, how many will Apple sell? Pricing is the critical factor to consider. Apple announced six different initial models, probably to give options for every budget and to increase market penetration. The lowest priced model, a 16GB Wifi iPad, will cost $499 while the high end 64GB 3G model will cost $829. It is worth remembering that the iPod Touch sold over 13 million during its first 15 months, and began at price points of $299 for 8GB and $399 for 16GB, not too far from the low end iPad model. It is also worth noting that the iPod Touch is Apple’s undercover hit- iTouches are estimated to be 40% of the 58 million iPhone OS devices sold worldwide. Given it genuine utility and the market performance of the iTouch , I believe that the iPad will exceed most analysts’ sales predictions, which range from 1.1 to 7 million units for the first year.

This super-sized audience has always commands high ad prices since it offers marketers unique access to a concentrated mass audience. CBS reported that prices floated between $2.5 and $3.0 million, although certain slots went higher. If an average of $30 million is assumed, the effective CPM last night would have been $28.17.

Since CPMs for global viewers during broadcast primetime float around $15, the Super Bowl CPM would be roughly double. This would also be roughly parallel to relationship between broadcast primetime and the Super Bowl within the Household CPM, as reported by the TV Bureau of Advertising.

This is the 100% price premium is the value given by the market towards being able to reach over a third of the U.S. population at exactly the same time. This unique opportunity affords a brand message to effectively become common culture within the span of 30 seconds. Now, whether or not an advertisers use this time wisely is another matter. You can be the judge; see all the spots from last night here at Ad Age.

The problem is that comparing yesterday’s performance with last season is somewhat lax since new audience lows were marked for both the premiere and finale last year. The 11th episode of last season also garnered the smallest audience of any first-run Lost episode to date: 10.8 million during the 11th episode. This was a far cry from the performance of first half of Season 2 when Lost was attracting over 20 million viewers.

As I mentioned in a posting back in March 2009, Lost has “lost” its audience due to its complicated serialized plotline, a weakness which was exacerbated by a long hiatus in the middle of Season 3 as well the 2007 writer’s strike which delayed and shortened Season 4. Luckily this season seems to be free from any similar debilitations so the series might end up growing its audience over the course of its last season, which if it were to happen might yield a rumored Lost spin-0ff.

Of course extrapolating this trend  is a huge assumption since iTunes membership has skyrocketed since 2007 and sales rates may have jumped soon after October 2008. However if that were the case Apple probably would have sent out some press releases in 2009 concerning TV episode sales and none were issued.

The bottom line is that Apple needs to rework its video strategy. Why should iTunes customers pay $1.99 for a one-hour TV episode when they can spend the same amount for a game that they can play hours with? Not unless they watch the episode several times a week will the two options equate and I think a good episode is worth watching around once every three months. In any case repeat viewing would require a user to store episodes (iTunes TV episodes take up half a gigabyte of drive space) resulting in another deterrent.

It is also possible that Apple’s current roster of video platforms (iMac, MacBook, iPod Classic, iTouch, iPhone, etc.) are not compelling enough for video watching due to portability in the case of the computers or due to screen size in the case of the portable devices. Tomorrow a new device is being presented by Apple which may usher in an ideal new vessel for consuming video. It may also persuade Apple’s TV production partners to go along with the new iTunes pricing plan.

Despite having not such a spectacular opening weekend, Avatar has maintained dropped off less than most movies and has already made more than $400 million, faster than any other movie except The Dark Knight in 2008. If Avatar continues along a similar pace it will overtake that movie and possibly become one the highest domestic grosser of all time.

A great deal of Avatar’s box office performance can be attributed to how many customers have decided to see the movie in 3-D Imax theaters, where tickets are significantly more expensive (40% more in my market). The more expensive Imax tickets have cushioned Avatar’s box office performance and constitute about 13% of weekend sales.

This is all proof that 3-D signficantly increases the value of video content. Other media companies have reached a similar conclusion and last week there were also many announcements last week of new 3-D initiatives:

• ESPN and Discovery Communications unveiled plans to launch the first 3-D networks, both of which would be partly subsidized by Sony.
• DirecTV announced also announced plans for a 3-D channel, although it would be pay-per-view and backed by Panasonic.
• Walt Disney Studios and Sony announced plans to release 3D movies on Blu-ray discs.

Although less than 1% of television sets in the United States can display 3-D content, expect to hear about more 3-D ventures in the near future, and to be wearing weird glasses in front of your television. Perhaps Ray-Ban will design some more stylish shades.

It occurred to me that such a model would be well suited for a digital subscription service, since it could faithfully measure the viewing audience for each channel on its lineup.  I decided to try and create such a model based on the parameters of the new TV subscription service that Apple is rumored to be developing. Supposedly Apple is offering broadcast networks a carriage fee of somewhere between $2 to $4 per subscriber while cable networks are being offered between $1 and $2 per subscriber. These top end of these fees run more than double what cable pays; a necessary compensation since the service will not carry advertising, eliminating a key revenue source for the networks, especially the broadcast nets.

Paying $4 per broadcast network would total $16 in programming costs to Apple. Also paying $2 per cable network with a 10 channel lineup would add on $20 in costs, totalling $36 per subscriber, well past the $30 price tage the service is rumored to have. Therefore, a viable business model for Apple’s service requires lower average carriage fees, but still needs an high upside to convince the networks to join.

An audience-based model that distributes fees according to viewership would allow for:

1. High ceilings for the carriage fees to the networks.
2. Fair compensation to networks for ad-based television viewing audiences cannabilized by Apple’s service
3. A lower total programming cost to Apple.

My proposal is to give each broadcast network a $2 base fee, with an additional $10 distributed among the four networks based on the share of viewing a subscriber gave to each one. Each network could have the possibility of reaching $4 per subscriber if they received 100% of the viewing for a given subscriber. A 25% viewing share would add $0.50. The following two examples demonstrate how it could work.

A similar model could also be implemented for the cable networks by simply substituting lower fees: a $1 flat fee per channel and a smaller distributed fee of $1 among 10 channels.

I realize that this model does not allow for much room in growing the channel lineup since it would incur significant new costs, but this could be planned for depending on Apple’s programming strategy.

In any case I do believe that this type of value-based fee pricing follows the spirit of business models espoused by Google (I am currently reading Googled by Ken Auletta), which efficiently allocate cost to value, and is the approach that will win out in the digital distribution of media.

Since most networks receive less than $0.50 per subscriber Fox’s deal seems pretty good. However once Fox’s large audience is accounted for, it seems that they should have gotten more than $0.50. Fox’s primetime audience is double that of ESPN but its carriage fee is less than a fifth. Using a ratio of carriage fees to primetime ratings points, Fox stands at 0.22, below most networks.

Negotiations between service providers and networks are closely guarded so it is very difficult to ascertain just how carriage deals are struck. Audience ratings are certainly not the only factor. ESPN attracts a lot of “hard-to-get male viewers, and even harder-to-get young male viewers” and its relatively high carriage fee is often justified because of this. Network bundling and company associations can also help boost fees. In any case it does seem that the difference in network carriage fees, in proportion to respective audiences, will lessen in the future.

Based on this information, it is arguable that Gone with the Wind was a more popular movie than Titanic based on this graph. Incidentally, for Avatar to match Titanic’s domestic performance it’s sales would have to be $900 million, well past the $533 million mark of last year’s top domestic grosser, The Dark Knight. Regardless, this wouldn’t be a balanced comparison since it doesn’t take into consideration a few factors.

First of all, media entertainment options are much more abundant than they were in 1939 and the potential for a mass hit which attracts the same numbers of individuals is much rarer today. While movies can be deemed to be blockbusters by today’s relative standards, they do not live up the moniker as determined by standards of Gone with the Wind, Ben Hur and Jaws.

Secondly, theatrical exhibition windows are much shorter now than in 1939 or even 1997. This is due to competition from more entertainment options, and in part due to pressures to push movies towards other release windows like home video and TV.

Lastly, and closely related to the second point, a movie’s success is not measured now by merely domestic box office performance. This was pretty much the only standard in 1939 but today blockbusters make as much revenues or more in international markets, as well as in ancillary areas such as home video and broadcast television rights. Titanic made $1.2 billion in home video sales and rentals, more than double its domestic theatrical sales.

Therefore while Avatar may not sell as many tickets in the U.S. as Gone with the Wind, or while it may not gross as much internationally as Titanic, it may still end up generating more business than either title based on home video revenues, video game sales and other secondary businesses. Unfortunately it is very hard to procure such detailed information so true performance comparison will ever be made, at least publicly.

One factor is surely reviews. Looking at the top 100 second weekend drops it is clear that many of the movies were simply bad. Scathing reviews from critics and bad word of mouth from opening weekend customers can obviously deter people from seeing a movie. An approximation for this relationship can be seen by graphing a movie’s box office (BO) drop to its Rotten Tomatoes (RT) score, a well known index that  averages critics’ reviews into a simple average. Titles that mark above 60% are deemed ‘fresh’ while those below are ‘rotten.’ Taking the titles that had BO drops of over over 70%, in terms of average gross per theater, and plotting them against their RT scores yielded the following graph.

The two biggest drops  of 83% and 82% were  Gigli and Captivity, who both scored less than 10% on the Tomatometer. New Moon was in the upper left-hand quadrant of the group, with a 30% RT Score and a 70% box office drop. While most of the movies that dropped more than 70% were ‘rotten’ there was still a low correlation in this group between RT scores and BO drops. Certain movies with good reviews, like Hellboy II, Jackass Number Two and Borat, still dropped a lot during their second weekend. At the same time most “rotten” titles don’t drop over 70% or even 60% after opening weekend so it’s clear that there must be something else to explain the demise of New Moon.

The other factors that explain BO drops are not quantifiable and are related to its target audience. Earlier this year I studied the top 100 movies of 2008 in terms box office gross and I noted that certain titles were ’sprinters’, quickly losing box office steam after the first weekend, while others were ‘marathoners’, keeping a steady earnings pace for much longer stretches. I also noticed that most of the ’sprinters’ like Cloverfield, Saw V and Meet the Spartans were targeted towards teens or young adults. It makes sense that heavily hyped movies draws immense traffic from teens on opening weekend. Other titles, especially horror or science fiction franchises, while not exclusively aimed at teens, still fit the ’sprinter’ modus operandi, since they attract extreme loyal niche audiences who have to see the movie during its opening weekend.

New Moon is clearly a ’sprinter’ since it’s in the horror/fantasy genre, it’s aimed mostly at teens and young adults, and it has a loyal fanbase. Given these circumstances it should not be surprising that it dropped so much during its second weekend, even if there were no major openings this past Thanksgiving weekend- an oversight perhaps of other studios who overestimated the potential competition from Twilight’s second coming.