Monday, February 26, 2007

BitTorrent's paid movie rentals are just silly

Not the concept. But these offerings are so predictable, and so predictably bad, in their pricing that each one is just another big delay before a service can finally be produced that offers real value to consumers, studios, content creators, and publishers/distributors.

Here are a couple of examples. First up, this Bittorrent service: from them, for $4, I get a 24-hour viewing period on a media file playable in some devices, with Windows Media Player.

Now, behind door #2, I have a video store where for a little over $3, I can get a physical disk that will play in far more devices, for a period of several days, most likely with better video and sound quality.

Maybe this demo (males 15-35) is too cool to go to a video store? I doubt it, but you also have Netflix. A conservative calculation (cycling 2 disks per week on a 3-at-a-time sub) yields about $2 per rental. Plus I can keep the disk as long as I like, and I have the luxury to not watch it in 24 hours if I’m busy. Although I do pay another convenience cost in that I am dealing with the Netflix queue, not an on-demand selection, this cost is essentially paid to Netflix; that is, it is a virtual subsidy of the Netflix operational model. The studios get no benefit from that at all, since the relative physical scarcity of disks is not in their model (they fix the original disk price and press as many as they can sell), but only enters into Netflix’ model (Netflix can only reasonably acquire, use, and then dispose of a modest number of disks for each film).

There’s also on-demand films from satellite/cable. Cost: $4. Terms of use? basically old school TV on VHS rules: I can record the show to my TiVo and make suitable personal copies (e.g. with my DVD recorder), which last indefinitely and which I am allowed to watch whenever I want. Downside? NTSC quality video.

Bittorrent is selling me a strictly inferior good at a higher price. Economics says they’re not going to succeed, and the studios will claim it’s because viewers are all crooked.

Not to pick on Bittorrent in particular – without doing a rundown of all of these work-alike online stores, let’s look at one more: Amazon Unbox made headlines for its onerous Terms of Service as well as its implausible pricing. Here are a few couple of typical price matchups all from amazon.com:

The Departed:
Unbox restricted download: $14.99;
actual DVD, widescreen with extras: $15.99;
BluRay high def 1080p disk $23.95

The Devil Wears Prada:
Unbox restricted download: $14.99;
DVD new $13.89;
DVD used ("very good condition") $8.76

Babel:
Download: $14.99;
DVD new: $14.24;
HDDVD or BluRay: $27.95

In some cases there are shipping charges, but there are numerous ways to avoid shipping charges on Amazon. For reference, iTunes new releases are around $12.99 and are also heavily restricted.

The point here is that not only do these ventures refuse to concede that more restrictions on media make it less valuable to the consumer, but they actually imagine that they are somehow innovating in a way that will let them charge more than the baseline cost (physical DVD/CD and accompanying rights are the baseline).

Nothing here suggests that the media should or must be "free" – only that Bittorrent president/cofounder Ashwin Navin and the studios are all yanking our chains when Navin says, "We're really hammering the studios to say, 'Go easy on this audience' ... We need to give them a price that feels like a good value relative to what they were getting for free."