This began as a response to an interesting comment on my post about threats to pirate the Game of Thrones series. I got carried away, as I tend to do, and the comment became too unwieldy for the comment form.
I hope it’s clear that I’m not trying to call anybody out or dominate the conversation, but that I think this is a genuinely interesting way to talk about the topic. It’s at least more interesting than watching people contorting themselves into knots trying to come up with a rational-sounding counter-argument to “People shouldn’t steal stuff.”
All the quoted sections are from comments by Tom Coates.
Why are you paying HBO $240 a year to get to see True Blood and a couple of episodes of Game of Thrones. If you think that’s genuinely what it’s ‘worth’ to see those shows, I think that you are—bluntly—wrong.
Is your argument REALLY that people should be paying $240 a year for True Blood? Because that just doesn’t sound in any way plausible. Not one bit.
No, that’s not what I’m saying. That’s why I no longer subscribe to HBO.
My argument was that for at least a year, HBO was getting (at least) around $240 from me for watching True Blood. So I was a more valuable customer to them than the guy who says “I don’t want all that; I’ll give you $40 for it. Deal? No? Okay, then I’ll steal it.”
My argument was also that there are millions of people like me who do subscribe to HBO and pay for their service. So when MG Siegler says that if he doesn’t like the terms, he’ll just take it for free, he’s not just hurting some faceless corporation. He’s taking advantage of stuff that millions of other people are paying for. It takes some mighty big stones to expect any sympathy from the people who are paying companies for stuff that he gets for free.
I’m guessing a lot of other people out there are NOT prepared to pay $240 a year to get to see True Blood, and that—frankly—many of those *would* be prepared to pay $40-60 to get to see the Season via iTunes when it’s broadcast. So you need (say) eight of those people to download for every one who buys HBO. That seems *entirely* plausible to me, frankly.
I’d be in that group of people who’d be prepared to pay $40-$60 to get the Season Pass on iTunes. The point of that blog post is that it’s unlikely that’d be enough.
I do think it’s being needlessly combative to dismiss all the actual numbers as being completely unknowable. It’s not that I agree with the claim that piracy numbers significantly equate to potential sales. I think it’s “needless” because even by doing the simplest, back-of-the-envelope calculations, the economics still don’t make sense.
Ignore the 8:1 ratio, and make it even simpler. Let’s say that Game of Thrones (instead of True Blood, just for the sake of keeping the conversation consistent) goes on iTunes the day after broadcast, for Siegler’s suggested figure of under $40 for an HD season pass. And HBO is actually $16/month on DirecTV, not $20. So one year’s HBO subscription is $192. $192 / $40 = 4.8, which means that you’d need a 5:1 ratio of iTunes season pass sales to HBO subscribers.
(Obviously, that ignores Apple’s cut, along with whatever deals it gets from DirecTV or Comcast. But it also ignores the fact that HBO doesn’t make all its money from selling one TV series through one source. So for simplicity’s sake, let’s call it even).
If a ratio of 8:1 is plausible, I’m assuming that you think 5:1 is plausible as well. But can you name any other TV series — or for that matter, any other product — that has seen a five-fold increase in ratings simply by lowering its price? I think that’s the part that’s completely implausible.
According to Entertainment Weekly, the finale of Game of Thrones (the highest-rated episode of the season) had 3.9 million viewers in the first night of broadcast. (The article goes on to say that the show averages 8.3 million viewers when you account for repeats, DVR, and on demand). This report puts it at 3.04 million viewers.
Are we supposed to believe that making the show available on iTunes would suddenly turn Game of Thrones ratings from 3 million to 15 million? Or even more unlikely, that you could convert 8.3 million viewers to 40 million? That assumes 15 million viewers would be interested in an epic fantasy series at all, much less that they’d be willing to pay $40 a head (no pun intended) for it.
A couple of obvious counter-arguments: this assumes that it’s either all subscriptions, or all iTunes season pass sales, and not a combination of both. It assumes that if HBO made its programming available same-day (or day after) on iTunes for $40 a season pass, that they’d lose all their subscribers. Obviously they wouldn’t lose all of them, but it’s clear to me that they’d lose a huge portion. There’d be very little incentive left to subscribe, unless you were one of the rare viewers who watched every series on the channel and you just couldn’t get enough of Kung Fu Panda 2.
And the even more obvious counter-argument: even by the generous, over-simplified example, they’d need 15 million viewers on iTunes + season passes to make the same revenue they get from 3 million viewers on subscriptions alone. But would they need all of those 15 million just to be profitable?
Obviously not, but it’s not as clear-cut even in the simplest calculation. Take that one estimate from The Hollywood Reporter that it cost $60 million to produce the series. Every discussion of Hollywood that I’ve ever seen says that a feature film has to make double its production cost in order to become profitable, because of marketing and distribution. For simplicity’s sake, let’s assume that it’s significantly less for TV series than it is for movies, and assume it’s 1.5 times the production cost. That would mean that GoT has a “break-even” point of $90 million.
I don’t know what Apple’s cut for TV shows over iTunes is, either, but just assume that it’s the same as for apps: 30%. That would mean that for every $40 season pass to GoT, HBO gets $28. By those numbers, a season pass of GoT would need 3.22 million season pass sales to break even.
That seems reasonable, right? They got 3 million viewers just in one night via subscriptions. But that’s the problem with directly equating ratings to sales: again according to Entertainment Weekly, the sales of GoT DVD sets are “through the roof” and broke all kinds of records. That record-breaking value: 350,000 units over 10 days.
That’s a much better indication of how many people are actually willing to pay for the whole season. I don’t know how to get the number of iTunes season pass sales for the same season 1 set of GoT, or if that information is even available to the public. No matter how much more convenient it is to buy stuff over iTunes than to pick up a physical DVD set, I’m pretty sure that that convenience doesn’t translate into ten times more sales. I would be stunned to learn if it’s even twice as many (700,000 units, still a good bit short of 3.2 million).
But that’s for a TV series that’s already a year old, and has had its big events long since spoiled all across the internet. Of course there’s going to be a drop in sales. How much do the sales increase if you reduce the time between broadcast and season pass/DVD set availability? I don’t know how to estimate that, other than to say “less than 2.5 million people.”
On the one hand, you’ve got a known market of 29 million subscribers, paying you $192 a year. On the other, you’ve got a demonstrated market of 350,000 customers, paying you around $30 a year. Somewhere in the middle, you’ve got the iTunes market.
We do know at least that MG Siegler and the guy from The Oatmeal have pledged to chip in $80 towards our $90 million estimate. Counting the actual bankable value of that, that leaves: $90 million.
If it’s silly for the RIAA and MPAA to directly equate piracy numbers to lost sales — and it is silly — then it’s every bit as silly to claim that those numbers significantly equate to potential sales. A company simply can’t make projections by treating torrent download figures as actual sales. A company can only make projections based on what people actually buy. I can’t imagine a TV exec would last very long if he could promise ratings would double or more, simply by opening the show up for download.
What I can imagine is that execs would be eager to do it if they had ample evidence it would actually work. When even a rough estimate fails to hold up — even though it’s based on numbers completely pulled out of my ass and still altered to make them more generous — I don’t see how the actual numbers could work.
A Word from Our Sponsor
Moreover, frankly, the world changes, and people’s business models have to change too. If all the other broadcasters think that they can make money by selling on iTunes the day after broadcast for a certain amount of money, then of COURSE expectations will be set for shows on HBO to be similar. And people will justifiably start asking ‘why am I paying so much for this’ or ‘why can’t I get it at the same time as I get all my other shows’.
And to those people, you point out: “all your other shows are subsidized by advertising.”
If anyone is paying $40 per season to watch Mad Men, which is broadcast with commercials on AMC, and is still confused as to why he can’t pay $40 per season to watch HBO shows immediately after they’re broadcast, then I’d suggest he’s not paying enough attention to Mad Men.
And anyone who underestimates the impact of advertising should consider this: an episode of True Blood a while back had two male vampires having sex with each other followed by one ripping the other’s heart out. The series regularly combines the “nudity,” “graphic violence,” and “adult language” warnings not just in a single episode, but in a single scene. HBO does have a standards and practices department, I’m assuming, but a significant part of the reason producers go to HBO is to be able to make content that’s not beholden to advertisers.
There’s Right, and then There’s What’s Right
And one way or another, whether it’s moral or reasonable or not, people are going to start moving to either other shows or they’re going to torrent it. Because it’s easy and it works.
Is that right? No. Is it basically inevitable? Yes. Does that mean that their existing business model might be under threat? Yes. Is that fair? Bluntly, that’s an irrelevant question.
If the question is irrelevant as to whether it’s unfair to HBO, then why is it relevant whether it’s unfair to customers? Why should HBO — or any of us — care whether or not Siegler is stamping his feet and complaining that he doesn’t get to watch Game of Thrones exactly when and how and for how much he wants to? He’s already demonstrated that he’s not a guaranteed source of income to HBO, and he’s already demonstrated that he’s willing to take advantage of those of us who do pay for what we get. If fair is irrelevant, then why should I care what he says?
Saying “fair is irrelevant, this is business” is always the position that’s presented as if it were the most pragmatic one. But in fact, it’s so short-sighted as to be completely unrealistic. An economy where one party in every business transaction is treated unfairly is unsustainable. If someone can’t even speculate on a business model that doesn’t end up with HBO losing money, then that’s not saying “I want HBO to make its content more widely available.” That’s saying “I want HBO to go out of business.”
I don’t want HBO to go out of business. Not for HBO’s sake, but my own, so that I can continue to watch vampires having gay sex and ripping each other’s hearts out.
Sermons vs. Stupidity
And meanwhile, a whole bunch of people actually are moving away from cable completely, because it’s an expensive standing cost each month that they don’t need to pay and they don’t want to pay. They want to own the shows and be able to watch them when they want to. Again, if HBO’s business model doesn’t stand up under those circumstances, and other people’s models do, and if HBO isn’t prepared to find some way to change, then — and surely this is obvious — HBO will fail.
Again, there’s a difference between what is fair and reasonable and what is going to happen. We’re in a transitional period here. Obviously the possible viewers buying things from iTunes is likely to grow massively over the next ten years. And the desire to be able to buy bespoke, just the things you want, to watch when and how you want, is not going to evaporate. So, I’m afraid, one way or another, HBO are going to have to find some way to adjust to it.
HBO has been adjusting to “transitional periods” quite profitably for most of my lifetime. Before the rise of VHS and DVD, they distinguished themselves by being the most convenient way to watch movies at home. Then they distinguished themselves by being the only way to get sex & violence on TV. Then they distinguished themselves by being the channel that produces highly desirable series and shows them without commercial interruption. It’d be an enormous mistake to talk as if HBO is run by idiots who can’t tell which way the wind is blowing.
And the “whole bunch of people” who are moving away from cable aren’t yet enough to replace a subscription model. If the market were there, they’d be milking it for all it’s worth. But the market just isn’t there.
People keep acting as if my posts and comments are “moralizing” about piracy. But piracy doesn’t offend me nearly as much as stupidity does. When Siegler and others say that HBO can provide the same thing that ad-supported channels do, and that HBO’s resistance to do so is purely out of greed or artificial scarcity, that is a gross display of willful ignorance. The facts simply don’t support it.
When Siegler and others say that piracy is their only option, and that it effectively sends a message to the production companies, that’s just insultingly disingenuous.
It’s entirely plausible that yes, “over the next ten years,” the market will be such so that people will be able to buy their programming a la carte. Assuming it happens, that’ll be great! But that doesn’t change the fact that Siegler is saying willfully stupid and disingenuous things right now.