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.

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.
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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.

Ratings

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.

Profits

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.

Boy, do I feel foolish! For two years now, I’ve been paying anywhere from $60-$90 a month to a satellite TV provider, for hundreds of channels I don’t ever watch. I’ve been doing it to pay for the shows that I do watch, and I just had no idea that there was a better way.

Fortunately for me and millions of stupid people like me, M.G. Siegler’s got it all figured out. There are these things called “torrents” that let you download television programming from the internet for free, sometimes even before it’s broadcast in your area! All you have to do is:

1. Download a BitTorrent client for your system.
2. Find the torrent file for the show you want to watch.
3. Tell yourself that you’d be perfectly willing to pay for the show if those damn media companies would only let you.
4. Download and enjoy.
5. Don’t put any additional thought into it, apart from rationalizing it on the internet.

Siegler’s devoted a lot of deep thought to this moral quandary:

The problem is that I’m not an HBO subscriber. Believe me, given the quality of their programming, I would love to be. Unfortunately […] You cannot give HBO your money directly. They will not accept it. They are fully in bed with the cable companies and are not going to get out of that bed anytime soon, because of what they get paid to perform their unnatural acts in that bed. A lot of money.
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Because of the aforementioned naughty cuddling deal HBO has with the cable companies, they also cannot (or will not) offer up their content via a legal means, such as iTunes, in a timely manner.

Clearly, it’s HBO’s fault. They’re wallowing in cash from their dark dealings with the cable and satellite monopolies, and they’ll be damned if they’re going to give up any of that profit just for the sake of Doing the Right Thing.

It’s a tough decision, and Siegler is being extremely bold by being the first person on the internet to admit that he’s pirated media.

It brings me no great pleasure to do it, and I’m not technically sure that I’m allowed to say this, but I’m going to because HBO has left me no choice: I’m going to be pirating season 2 of “Game of Thrones.”

I’m going to be forced to scour the shady underbelly of the Web to find the show.

[…]

Again, I’d gladly pay for it. But I have no way to do so, outside of forking over an obscene amount of money on a monthly basis to a cable company, and/or waiting a year. I’m just not willing to do that. My hand is being forced.

And when someone posts a link to the webcomic The Oatmeal that said exactly the same thing as his blog post does, and which was forwarded to the Facebook and Twitter feeds of every single person on the internet a few weeks earlier, Siegler makes it clear why he’s writing: it’s “worth putting it into words again and again and again and again, until something changes.”

It’s clear: there is no other option.

Except, well, being patient and waiting for it to come to iTunes. Like adults without an over-inflated sense of entitlement do. That’s basically the approach that Andy Ihnatko suggested, in his post “Heavy Hangs the Bandwidth That Torrents the Crown”. That was one of the most perfect articles ever written about the topic. At least, it was before Ihantko felt the need to qualify it with an addendum about how media companies force people into piracy. Apparently the notions of personal responsibility and “two wrongs don’t make a right” are too nuanced for the internet to be able to process.

Oh right, I forgot that there is one other option: paying for it with cable or satellite service and a subscription to HBO, like millions of other people do. But Siegler thinks that’s outrageous:

Why would I pay upwards of $100 a month for something I have no interest in? I just want HBO.
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When I watched the first season of “Game of Thrones” this past week, I watched it through iTunes, where I happily purchased the entire season for $38.99 (in HD).

So as he repeatedly makes clear, Siegler is perfectly happy to pay for his television programming. Well… up to a point, anyway.

Let me see if I can piece together the terms of this transaction: it has to be less than $40 for the entire season. He has to be able to download it to his computer and watch it anywhere. And he shouldn’t have to wait any longer than HBO subscribers in any time zone in the world in order to watch it. If profit-hungry HBO doesn’t agree to those terms, the only recourse for the consumer is to download a torrented version.

Why is HBO being so damn unreasonable?

At The Onion’s AV Club, Todd VanDerWerff posted an article called “Patience and piracy: Why helping yourself hurts good TV.” It’s got more rational thinking and insight than a hundred Oatmeal strips stacked end-to-end. But, because of all those troublesome words and ideas, it didn’t go viral. (And because it didn’t have “Piracy” and “Game of Thrones” in the title, like Siegler’s post, it didn’t do as good a job of link-baiting. “I’m being forced to pirate Game of Thrones against my will!” is a much more internet-friendly title than “A Winter of Piracy is Coming.”)

Here’s where things get a little tricky. And speaking as someone who watches a lot of television, I have special insider knowledge of how media corporations do business that Siegler, a partner in a venture capital firm, couldn’t possibly be privy to. So excuse me for getting technical here, but bear with me: an epic fantasy series consisting of dozens of hours of footage filmed in various locations with several prominent Hollywood film stars is not an inexpensive production.

Whew, sorry to blow your mind with all that jibber-jabber. Let me dumb it down a shade:

We all know how TV works — you watch it for free or download a season pass for around 40 bucks on iTunes or Amazon. But then, this isn’t TV. It’s HBO. And over a decade ago, HBO responded to the decreased demand for their feature-length movie schedule by putting the spotlight on well-produced, innovative, quality original programming, and also Hung. And it’s not just the case that they produce “tentpole” series like Game of Thrones, Boardwalk Empire, and Rome — television series with feature film budgets. They also produce stuff that probably wouldn’t be feasible elsewhere, like Deadwood, Bored to Death, and even True Blood. (Which isn’t an epic production like the others, but still straddles the line between lowbrow enough for broadcast TV but still too raunchy and too niche for broadcast TV).

That model isn’t cheap. And I’m sure that HBO appreciates the thought, Mr. Siegler, but your generous contribution of 40 bucks before Apple’s cut isn’t quite enough to cover it. For that matter, your $15 a la carte subscription to HBO wouldn’t cover it, either. What covers it is that “naughty” relationship HBO has with the cable companies. It’s kind of like that $600 smart phone you bought for $300 plus a cellular contract.

Except there’s even more to it than that. HBO can afford to produce shows like Game of Thrones because HBO has established itself as a company that can produce shows like The Sopranos (and Rome, Deadwood, etc). People will pay for HBO because of the programming that they can only get on HBO. That exclusivity is baked into the value of the company, and therefore into the cost of its programming. They’ve sneakily hidden this fact into their shady deals with unscrupulous cable providers and by making it the tag line of an entire marketing campaign: “Only on HBO.”

If you can spend $2.99 for an HD copy of the latest episode of Game of Thrones at the same time as a cable subscriber who’s paying over $95 a month for his cable and HBO subscription, then there’s no incentive for him to keep subscribing. And then there’s nothing to separate the digital release of Game of Thrones from that of Mad Men and Breaking Bad, even though two of those series are subsidized by advertising and one isn’t. And there’s no incentive for HBO to keep funding weird, original, expensive, commercial-free television series.

None of this is really all that complicated.

But in this case it’s different, because Siegler and others like him really want to watch Game of Thrones and nothing else that HBO offers. Well, a couple of years ago I really wanted to watch True Blood and nothing else that HBO offers. What I did was I torrented an episode, and I felt like an asshole about it. Then I paid $20 a month for an HBO subscription. So please don’t anybody try to present a confession of “I didn’t feel like an asshole about it” as a battle cry of “I’m taking a stand against Big Media!”

Would I prefer to pay $40 or less to get a season pass of just the series I want to watch? Of course I would. But I was cursed with a conscience and the nagging tendency to think about things for more than a half second. And I quickly realized that paying for the stuff I don’t want to watch helps pay for the stuff that I do want to watch. And that the stuff I watch for “free” has been paid for with advertising.

(Incidentally, the next time I read anyone suggesting that digital versions of print media like books, comics, and magazines should of course be cheaper than the print versions, because the cost of printing has been removed, I’m going to devote all my energy to perfecting my slap-someone-over-the-internet technology. Don’t say you weren’t warned).

And am I suggesting that DirecTV and HBO are just barely scraping by with subscription fees and DVD sales? Of course I’m not. Both NewsCorp and Time Warner are doing quite well for themselves, last I checked. But I missed the day of ethics class where they told us that it’s okay to take stuff without paying for it as long as I was taking it from rich people. And unfortunately for me, their financial success doesn’t obviate my personal responsibility.

Personal responsibility is what it all comes down to, because that’s the part we actually have control over. Marco Arment, someone I usually agree with about everything except coffee, wrote a post (with diagrams!) called “Right vs. Pragmatic” in response to the Oatmeal cartoon and Ihantko’s blog post. And for most of that post, he’s right. The response to piracy from “big media” has just been bone-headed. All the litigation and legislation against piracy on behalf of the RIAA has been a failure both financially and in terms of PR, and now the MPAA is making all the exact same mistakes. The DMCA sucks. And it’s stupid to hold onto an outdated business model when there is still plenty of money to be made providing content through more accessible channels like iTunes, Netflix, Hulu, etc.

But in that entire post, there’s one very important point that Arment fails to emphasize: Responsible, grown men should not be throwing their fucking trash on the floor in the first place.

If you want to really make a stand, instead of just talking about it to make yourself feel better, then actually take a stand. Don’t buy TV from HBO if you don’t like the way they do business. Don’t help advertise it, either, by posting big pictures from the series on your blog and using the title in your post title and talking about how the show is so great that you’re willing to steal it. And if you like the show and would like it to be available on iTunes, then buy it on iTunes. If you want the show to be available on iTunes sooner, then buy a show you like that’s already available, and make it clear that there’s a demand for television through that channel that’s greater than what they’re seeing from cable or satellite subscriptions.

HBO execs have about a 0.0000% chance of reading a post on your website. They have a slightly higher chance of seeing your download of the torrent file in the logs of a pirate website years from now when the site gets threatened for shutdown. They’re guaranteed to read the income statements from Apple.

All that said: everyone should check out that Oatmeal comic one last time, and give him the final say. Scroll to the bottom of the page, after the big chunk of ads that help pay for his bandwidth, and read the last three words.

“Please don’t steal.”