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Value for money: the $64 million question in the video entertainment industry

by User Not Found | Sep 23, 2010

Over-the-top video services have been putting mounting pressure to pay TV providers. Apple TV is well received by the reviewers, even though nobody has used the real product. Netflix's stock price just hit a new 52-week high as it expands its streaming service into Canada and its long-time competitor Blockbuster filed for chapter 11 bankruptcy. Amazon is preparing its own streaming service, so does Sony. Everything together depicts the picture that pay TV companies are doomed. The prices for pay TVs' current plans have long been perceived as ripoffs. According to Strategy Analytics recent consumer survey, only 20% respondents say that the value-for-money of their pay TV services exceed their expectations. This is clearly a vital weakness of current pay TV services. But on the other hand, because of the overpricing pay TV providers are able to pay media companies big checks for their content. Everyone loves money. This is the reason why media companies and content producers have been reluctant to give their content to the new online distributors, such as Netflix. The advent of Apple TV seems to have taken a big step in the direction of solving this problem, offering a pretty cheap price for the content to consumers, i.e. $3.99 per movie rental and $0.99 per TV show episode. And because of its power in the consumer electronics and media industry, a lot of the major media companies are willing to participate in the deal in the hope of generating incremental revenues in addition to existing distribution channels. But today Viacom has said that the price for content on Apple TV is too low and they will not participate in the service. Other national broadcast networks owned by NBC Universal and CBS Corp. and all cable networks chose not to participate due to pricing and other strategic concerns. It is a big blow to the fledgling Apple TV service. Fundamentally, it is a confrontation between media companies and consumers, with content distributors being as the intermediary to alleviate the tense. Content owners want more money for their content, whereas consumers want to save money from their entertainment spending. As a result, a lot of consumers flock to Netflix due to its low pricing. But media companies tend to favor pay TV services for their content access, as they pay more. The end of the story is that consumers are not completely happy with Netflix as they don't get new content from it, but pay TV services suffer too, witnessing their subscribers eroding. From economics standpoint, it is not maximizing the social benefit as media companies are leaving the money on the table by sticking with overpriced pay TV services. It is clear though that anyone who can address the $64 million question in the video entertainment industry will lead itself to prosperous growth. And the industry needs a compromise. - Jia Wu
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