I’m working at home today and was thinking I could catch up on Heroes on my computer. So, I go over to iTunes and realize that iTunes doesn’t have Season 2 because NBC pulled their content from iTunes. Wonderful.

So, I have to watch it o NBC’s web site, but since I can’t float the video like I can the iTunes window, I’m only able to watch a sliver. A screenshot of that half of my laptop screen is below the fold. I also couldn’t tell you what the TV commercials are for. I’m assuming that’s the revenue NBC wanted, but I’d like Sprint (the ads on the page) and whatever other video advertisers know that I ignored the ads on the NBC Video Rewind Player. It’s too easy.

And, on top of that, NBC/GE shareholders, they just lost $1.99 an episode from me. I missed 4 episodes, to that’s $8. Yes, yes, I can download Heroes episodes from Amazon except that I don’t own a PC. I don’t want to store them permanently on my Tivo. I’d like to take them on my iPhone and iPod. I can’t with Amazon’s inferior product. I’m not saying that you HAVE to go with iTunes, but keeping the most popular portable music player, the fastest selling phone, and a rapidly growing platform in mind would be a good thing, don’t you think?

So, NBC, thanks for screwing me out of a good experience and yourselves out of some cash. I’m sure I’ll miss more episodes of Heroes, and I’ll do the same with your online player. The irony is that my views will count just the same for the player, and NBC will count it as a success even though, quite frankly, the advertiser is getting screwed. Page views and video starts are pretty opaque stats, but that’s all that gets reported to advertisers.
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In a comment at Josh’s place, slugfest asked what would happen to network TV if everyone bought TV shows online rather than watching them via ad supported TV. That’s the question I set out to answer tonight. Beyond the general point, it’s another angle into the NBC/Apple dispute.

I’m not that familiar with the TV advertising biz, and if anyone that knows better wants to chime in, I’d appreciate any insight. I’ll see if I can track down someone at ABC or ESPN to give me a better explanation.

For now, here’s my methodology to do a rough estimate. The key piece of data is the price of a 30-second spot. We also need to know the number of commercial slots per hour episode. We then need to estimate the number of households that would have to purchase iTunes to match the episode’s actual viewership.

Working backwards, here’s how I decided to tackle this. I’m going to assume an iTunes purchase is necessary per household. So, I should be able to take the number of households implied by the episode’s rating or share and just use that number directly. Looking through the 2007 Studio Briefings, a top 10 show averages around a 10-12 rating (non-rerun), which comes out to about 11.1-13.3 million households.

Looking at episodes of Lost, House, and CSI on iTunes, I’m seeing an hour episode running around 43:30, which means that there is 16:30 allotted for commercials. In order to simplify the math, I’m assuming this is sold in even 30-second chunks and is all national advertising. So, no regional slots, no splitting revenue with affiliates, cable broadcasters, etc. That makes 33 slots per hour.

The hardest thing to find was the per slot price for a 30 second spot. After a fair bit of Googling, I found several sources reprinting an AdAge article that breaks down the rates for the top 10 shows in 2006-2007. For the sake of simplicity, again, I’m going to pick an average for the top 10 at about $400,000 per 30-second slot. Obviously, this could be higher or lower depending on which show you’d like to do the math for.

So, based on these numbers a typical hour episode of a top 10 TV show brings in around 33 * $400,000 =~ $13.2 mil. This estimate is going to be on the high side because I doubt the national network gets all of the slots, as I mentioned before.

Based on the household numbers of 11.1-13.3 million households, we can estimate a gross take for Apple at $1.99 * 11.1 mil =~ $22 mil. At 13.3 mil households, it’s around $26 mil. Assuming it’s a 50/50 revenue split (unlikely — Apple probably takes a very small percentage), the network rakes in between $11 mil and $13 mil. More if they command a larger percentage of the retail price.

Based on this quick, “back of the envelope” math, it sure looks like TV will live if we all started paying for what we watched, at least as far as the top shows are concerned.

Where NBC may have a point, though, is if they wanted to reduce the price of some shows on iTMS based on ratings. I shouldn’t have to pay the same for, say, Mythbusters or Ice Road Truckers as I do for Lost or Heroes, which are way more popular. That’s not what NBC is arguing with their desire for “flexibility in wholesale pricing”, since they seem to be complaining that the prices are too low. TV Squad interpreted that statement to mean that NBC wanted to offer special promotions so that you could get an episode of The Office when you buy Evan Almighty (TVSquad’s example). That sounds as bad as the current cable scheme where I pay one “low” price and get more channels than I can watch.

As I mentioned above, I’m interested in feedback, corrections, or additional information from everyone, especially those more knowledgeable about ad sales and the TV business in general. I think this is a worthy conversation to have.

Update: One other thought: the total ad dollars above, based on a rating of 11 (12 mil households), would create a per episode price of $1.10. And, these are for the top 10 shows over the year. How much is something like Battlestar Gallactica or Psych or What Not To Wear worth in this scenario? Something else to think about.

Josh has a worthy rant on the NBC/Apple debacle on his blog right now, but I just read on The Machinist that the sticking point was that NBC wanted to double the wholesale price of TV shows on iTunes. Eddy Cue, who runs iTunes for Apple, claims that this would’ve pushed the per episode price to $4.99. Apple is fighting back by by discontinuing NBC shows at the end of the current season rather than mid-season when the contract ends in December.

I’m not sure I can add much more than what Manjoo and Josh have added at this point, but I do want to point out something here. There’s this idea that taxing at too high a rate encourages people to break the law. I suspect a similar curve exists when cartels or oligopolies set arbitrary rates, as well. How elastic is the market for downloadable TV episodes?

I’m not really sure what the fair market price is for an episode of a TV show. $1.99 seems high to me at times, quite honestly. All I know is that the marginal cost of making a copy of a TV show is something around $0.00 and so people are really paying for quality and ease of access and whatever value adds services like iTunes provide (Season Pass, auto downloads, no commercials, etc). I know that I wouldn’t pay $4.99 per episode or $60-80 per season for a show. It’s not worth that much.

Now, I’m not a file sharing kind of guy. I’m that guy that gets the FCC license for my GMRS radios even though no one actually does or enforces the requirement. That’s my point, though… many people aren’t like me. Most people don’t mind breaking the law when they feel like they’re being shafted. Something tells me that BitTorrent is about to get more popular.

(PS. If you’re not reading The Machinist blog, you’re missing out. Worth the Salon subscription alone.)

Just a quick observation: Lost on iTunes isn’t widescreen. Heroes on iTunes is. Apple is making choices easy on the studios, but I wish the content was uniformly 16×9. It doesn’t matter on my computer, or on the iPod, but I don’t want to miss what’s happening on the edges. I know Lost, in particular, has put easter eggs and extra hints in the extra real estate.

Technology Liberation Front has a good article up about how eMusic might represent “The Future of Music.” I found this article via Kareem’s blog, and normally it would just be a headline link here, as it was on reemer.com.

It’s not a headline post because, coincidently, Atrios has been plugging eMusic for a few days and I went ahead and gave it a try because of the 50 free MP3 trial offer. So far, I’ve found some cool Indian-influenced music that I wouldn’t have found otherwise. On the whole, though, I’ve found the whole thing quite daunting. It’s a very big catalog of less-than-well-known music and, because of that, it’s very, very hard to navigate it all. I use the same approach as I do with iTunes, relying on top sales lists, but previewing clips is too complicated on the Mac.

That’s probably the biggest problem I have. The site offers .m3u files (MP3 playlists) for previews. It’s all nicely standards based, but the default behavior on the Mac is to play the .m3u file in iTunes. That means that I have a clutter of random streaming MP3 clips stuck in iTunes that I don’t really want. I tried switching to just using Quicktime for .m3u files, but then it downloads the file to my disk, where I have to double-click it (or the icon in he download center) to play the file. In the end, I stayed with this system, previewing entire albums so I would only have to do it once per album.

I’m open to any suggestions people have with using eMusic on the Mac.

The article is a good read, by the way. You should check it out.

Yeah, so I am nuts and got the second season of Lost (iTMS link) from iTunes. This is good stuff. Added it to Tivo, too. (and yes, this means that in the last 48 hours or so, I’ve watched about 18 hours of Lost. Really. (Well, listened to is more like it since I’ve been doing wedding planning and work at the same time…, but still)

I’m watching the first season of Lost on my computer and I have to say, I’m now up to 3 hours straight where I’ve only been watching instead of working and watching. This is way better than I thought. I think part of it works because the cast is big. Each episode can focus on a different back story for a different character. The writing is pretty good, too.

This is the first thing I’ve really watched from iTunes (well, except for the Lazy Sunday (iTMS link)). Gotta say, the quality is pretty good, better than I expected. It’s watchable, even at double size. The full screen presentation stinks, but that’s not surprising, honestly. I’m curious whether Front Row does anything “smarter” with the video to get a sharper full screen picture. Otherwise, on my 20″ it’s pretty much unwatchable. Of course, Evangeline Lilly would probably look as good regardless of the video quality.

Since I’ve had a few days off, instead of being productive, I decided to catch up on Scifi’s Battlestar Galactica. By catch up, I mean watch the miniseries and first season. I’m hoping to catch the the first half of the second season next thursday before they launch the second half.

So, in order to catch up, I either had to buy the DVD or try iTunes video. Being lazy, I went for iTunes. So, my first thought: Sure is cheaper on iTunes. Amazon sells Season 1.0 for $39 with free super saver shipping and iTunes sells it for $26 + tax and I get it now. So far, I’m liking this iTunes thing. The con is that a season sucks up 2 gb, which is 5% of my laptop’s hard disk. So a bit of a minus there. Plus, when you realize that I just purchased a 6 MP digital camera, I’m suddenly seeing visions of a full hard drive.

But all that is really secondary. The question is how does it look? Not bad but not fantastic. There are some clear pixelations at points, especially during the credits. To be fair, I’ve seen some of the same issues with DVDs so it may be more of a TV resolution on a computer screen issue, rather than a weakness in iTunes video format. The sound, coming out of computer speakers, was fine. I’d love to get the DVD, just to compare, but even if the video isn’t quite as good, the price and convenience certainly make it viable.

The real question is still unanswered though: How does iTunes compare to Tivo? That is harder to say. I can’t compare picture quality, but I would assume they are similar. If I had Tivo, I certainly wouldn’t need to buy episodes of Battlestar Galactica…Tivo would take care of them for me. Of course, if I miss the episode, Tivo can’t help, but right now iTunes selection is so limited, that much of the time it can’t help me either. On one hand, I can buy 75 TV shows for the yearly subscription price of Tivo. But on the other hand, with Tivo, I can burn DVDs of shows I record. Frankly, I don’t think there are 75 shows a year that I want so badly I’d pay for them, but I can see a lot that I might record and burn if I had Tivo.

Frankly, for those with a DVR, I can’t imagine them using iTunes video all that often, except maybe to get very old programs that aren’t broadcast any longer. For those without, it is a nifty service, but I’d still be tempted to break out the VCR if I know I am going to miss an episode of a current show. Digital cable with “On Demand” style services throw another monkey wrench into the whole thing. I’d like to think that eventually people will use a combination of all these services, however I suspect that with DVRs and On Demand available, iTunes video is going to be relegated to service for finding older video with low demand or as an independant type distribution house. While it is cool that iTunes is slowly moving to becoming a complete multimedia distribution system, I am pessimistic as to its future success. Music worked as means of driving iPod sales. I just don’t think that video is going to translate.

All that being said, second season Battlestar Galactica repeats on Thursday Jan 5 starting at 8 am until 5pm. The second half of season two starts at 10pm on Friday the 6th. I just hope that I am home in time for the 1 am repeat…but you can bet the VCR will programmed to record it.

For anyone who wasn’t aware, Apple has released new iPods with video capabilities. I’m not a huge fan of these new iPods personally; the screens are too small and I think that I can go out into the world for a few hours without video content. What I think is most interesting is that ABC is willing to sell some of their hit shows 24 hours after they air. Unfortunately, these aren’t shows that I want to watch, but I like the idea.

I like that the TV industry is starting to to look towards electronic distribution. TiVo has proven that people want and will embrace an easy way to watch their favorite shows when they can’t be home. Sure, I know that VCRs have been around for years, but I don’t think anyone thinks that DVRs and VCRs are in the same league. Electronic, on demand distribution is the wave of the future. The cable companies have recognized this and are starting to take advantage of it. Anyone who has used “On Demand” knows the simplicity and convenience of it: what you want, when you want it. I’m not home on a consistant schedule, so I like the ability to watch certain shows when I want them.

What I’m worried about is that as an experiment, the ABC-Apple partnership is going to fail. How many people who are “Lost” enthusiasts are going to miss an episode, or will miss recording that episode? Sure, there will be some, but I’m not sure how many will then pony up $2 to catch it. There will be a few, no doubt, but will it look like a good business model? And the network affiliates are resisting the concept. They pay huge bucks to get these shows and make their money off advertising. They will resist any move that risks reducing the number of eyeballs stuck to the screen. And a few shorts from Pixar does not a movie distributor make.

The real power in digital distribution is in all those millions of hours of video that is sitting in TV vaults. I’ve started to see a few of my favortie TV shows from childhood available on DVD, but those are few an far between. While some do get released, the runs aren’t big and they can become unavailable very quickly (such as “Transformers,” f.e.). With digital distribution, the marginal cost of making them available is almost nothing. There is no DVD costs, no inventory and no distribution costs.

The problem is that I’ve heard this all before. The same things were said about the music industry. From what I have heard, less than 10% of what record labels actually have is available for distribution. Digital distribution systems like iTunes were supposed to fix that and increase choice. As far as I can tell, the vaults haven’t been opened. Instead, the RIAA has fought digital tooth and nail. I’m not sure the Motion Picture and Television industry are going to be any better. Without a clear reason to buy TV shows, I’m not sure that people will pay for what is available for free.

Then again, I could be wrong. People have been buying the complete seasons of TV programs when they come out. Star Trek: TNG was a fairly large seller and it is still in reruns on Spike!. So it might work. Time will tell. The next question is will they really watch them on their iPod? That is a whole ‘nother question.

One more thing: anyone notice that there was no mention of Powerbooks? It has been 8 months since the last update. Mine is over 2 years old and the current models don’t offer that much over what I have. There is an Apple event next month and I hope that they have some good update, for the last few have been lack luster. I’m not expecting G5s or anything, but I’d like to see something that offers a really serious performance improvement (like dual core G4s). Or super long battery life, like the Intel mobiles. Frankly, for Job’s recognition of “The Year of the Laptop,” their product line is starting to stifle. Come on Apple. I sure hope that we don’t have to wait until Apple goes to Intel for that bump. (BTW Apple, I really want a computer the size of the tiny Sony Vio, but running OS X. Can we work on that?). There is a new annoucement this coming week…I hope it is good.