Apple looks at the digital marketplace and it sees great potential. There are more digital consumers than ever, more options for consumption than ever, and more content than ever. But, the digital marketplace is underperforming. Going back to Econ 101, Apple suspects the lack of demand is related to price--specifically, prices are too high--especially for video. To open the floodgates of demand, Apple is asking TV networks and studios to half the price of their content on the iTunes Store : from $1.99 to $0.99 per episode.
For TV networks it’s not that simple. They draw revenue from over-the-air broadcasts, cable, DVD releases, and other pay-for-content providers. While revenues overall may be down, they don’t see how Apple’s proposal works for them. Sure, they may see additional revenue if digital demand picks-up in response to lower prices. But, they also risk taking a hit if there’s a concomitant drop in demand elsewhere. That’s a risk they don’t appear eager to take.
Apple’s request, which would definitely help its bottom line, is compatible with the preferences of an emergent class of digital consumers. They want their content. They want it now. And they want it cheap. These preferences, however, aren’t compatible with today’s content providers, who generate revenue from a variety of sources, and have interests that directly conflict with the emergent digital marketplace. For example, Comcast is about to swallow NBC, which makes it a content provider and a conduit for content. Comcast can’t let digital consumption threaten either. As long as this remains true, realization of the potential of the digital marketplace will be a long time coming.
Image Credit: Apple