Back in June 2009 I conceived of what Apple’s, then rumored, touchscreen device might look like and how it might be used. One month ago Apple finally unveiled the iPad ; it only mildly resembles my conceptual model but it does embody a simple yet versatile multimedia device with a lot of potential. Since its introduction some have dismissed the iPad as nothing more than an oversized iTouch and while this description is relatively accurate it fails the recognize its intrinsic utility and why it will be such a huge success.

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

Continue reading Predicting the iPad’s success

Last night CBS attracted an average of 106.5 million viewers during its transmission of Super Bowl XLIV, which effectively made it the most watched broadcast program of all time. While the Super Bowl has always been a major broadcast event in the United States its average audience has been growing steadily at around 2.3% since 2000. Last night’s broadcast was the final push, that finally broke the 100 million viewer mark.

Continue reading Super Audience

Last night the final season of Lost began with a double episode premiere, garnering an average of 12.1 million viewers. The good news is that this is about 6% more than last season’s premiere, and it’s also the first time since Season 2 that a premiere has a larger audience than its precursor. The better news is that the audience growth over-indexed in the 18-49 demographic, attracting more than 10% than last season.

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.

An article today in the Financial Times mentions how Apple is supposedly pressuring TV networks to cut their episode pricing on iTunes in half, from $1.99 to $1. The price cut indicates that television sales have been lackluster. While exact iTunes sales information isn’t offered, it is known that Apple had accumulated sales of 15 million TV episodes in February 2006, 50 million in January 2007 and 200 million in October 2008. Based on this, in a recent in November 2009 I projected that Apple should have then reached sales of 86 million episodes.

Continue reading Reworking Apple’s iTunes TV strategy

James Cameron’s latest film Avatar has had yet another strong weekend at the box office, making $50.3 million and breaking the record for biggest four weekend gross, previously held by Cameron’s penultimate film Titanic.

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.

I wanted to follow up yesterday’s note on cable carriage fees by imagining a model that would determine such fees, at least partly, on the relative amount of audience that a channel attracts.

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.

Continue reading Fee Model for Apple TV Subscription Service

This past week Time Warner Cable came close to dropping the Fox Network from its system due to a dispute concerning retransmission fees. In case you aren’t aware, cable companies like Time Warner and Comcast pay networks for transmitting their channels on their systems. For broadcast networks that opt out of must-carry regulation these payments are called retransmission fees. For cable networks they’re called carriage fees. In both cases they have become more important given the recent drop in advertising.

Fox had been asking Time Warner Cable for $1 per subscriber. The counter offer was only $0.30 and SNL Kagan believes that they settled at $0.50 with a likely “increase over the life of the new agreement.” Since most networks receive less than $0.50 per subscriber Fox’s deal seems pretty good but based on Fox’s large audience it’s arguable that they should have gotten more. 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 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’s likely that the difference between network carriage fees, in proportion to their respective audiences, will lessen in the future.

Avatar, James Cameron’s new film, premiered to the public late last night. Since James Cameron’s last movie, Titanic, is currently the number one domestic grossing movie of all time, in the long term Avatar is expected to do well and a lot of articles are appearing that are trying to predict and compare its potential success. The Economist published a chart yesterday comparing the top domestic grossers, ranked by inflation-adjusted dollars as well as accounting for multiple theatrical releases. Under these parameters Titanic drops to the sixth position. The following graph lists the same movies, based on number of tickets sold instead of inflation-adjusted dollars, which is basically the same metric.

Continue reading How big will Avatar be?

The second installment of the “Twilight Saga,” New Moon, had an extremely successful opening last weekend, grossing $142,839,137 domestically, which is the the third highest weekend opening of all time. Unfortunately, the following weekend the movie made substantially less substantially less, only $42,870,031, a drop of over 70% which is much greater than what most movies experience. On average, for the top 100 grossing movies of 2008, titles dropped 50% on the second weekend. Out of the top 100 openings of all time, only New Moon has dropped over 70%. So how or why did New Moon lose its shine?

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.

Continue reading New Moon drops big

Yesterday a deal was announced between Univision and YouTube whereby the U.S. Hispanic network would bring a “hefty stable of short- and long-form programming to YouTube.” While this is “the first time any Univision programming is available on the Web outside of its own properties” a great deal of the network’s programming, particularly material from Televisa, has been illegally posted on YouTube. Back in February TubeMogul estimated that this content drawing was over double any other U.S. network.

Number of views of clips from the 10 most-pirated shows on each major network
Univision: 583,750,247*
Fox: 289,074,325
ABC: 260,299,418
CBS: 127,334,729
NBC: 120,890,835
Source: TubeMogul
*Includes Televisa content pirated from El Canal de las Estrellas

As I mentioned in a posting in February, Univision’s view count is mostly attributable to Televisa content, specifically material copied from El Canal de las Estrellas where their telenovelas air months ahead of Univision. Similar to how different regional premieres have encouraged piracy in the movie industry, pirated telenovela clips have flooded YouTube to the delight of thousands of fans.

Continue reading The Wild World of Online Telenovelas