Sometimes the big just keep getting bigger. This has traditionally been the case with Univision and their latest online moves are pretty big. The company already ranks as the top U.S. Hispanic property, almost double the users of the closest competitor.

Granted, Univision’s audience was slightly inflated during the month these figures were measured since their site began streaming World Cup videos on June 11. Therefore their current traffic might be closer to 2.5 million, a figure I’ve seen in some industry presentations. Regardless Univision is clearly in the lead and it will likely extend this position given a number of recent announcements:

• September 20: Univision launched 72 new local and mobile sites in top 20 Hispanic markets. Including this one for its owned and operated Miami station.
• September 23: Univision and the NFL announced the launch of a worldwide site (www.NFL.com/espanol) for Hispanic and Mexican NFL fans.
• October 7: Univision launched a new music site, Musica.Unvision.com.
• October 12: Univision and NBA announce a partnership for a new co-branded site with league content on Univision Interactive Media’s online platform.
• October 18: Univision anounces that VEVO’s music video catalog will be added to Musica.Unvision.com.

Most importantly, and probably instrumental in closing these parnterships, a significant deal between Univision and Televisa was realized whereby online content rights from the latter will finally extend to the former. As I explored in early 2009, Univision’s lack of these rights resulted in a large amount of pirated Televisa material on YouTube, something that was eventually policed during the ensuing year, probably as a prelude to this deal.

With the addition of NFL, NBA, Televisa and new music content, it will be interesting to see how much Univision’s traffic grows. Since Univision already reaches over 75% of the online Hispanic audience the effect might be greater in terms of engagement rather than unique users; popular long-form telenovela videos should considerably raise the time on site for their users. Video traffic also sell at higher CPMs and has strong growth potential- online video advertising grew over 31% during the first half of 2010 as compared to 2009.

At the 2009 Horowitz Media Conference a speaker declared that Hispanic online video was a wide open opportunity. It seems to me that with Univision’s announcements this sector will be catching on fire during the next year, and will likely attract a lot of attention and further investment, both in the form of advertising and new ventures, something that should be beneficial not just to Univision but to all participants in the online Hispanic market.

Last week Steve Jobs presented a new version of the Apple TV device and announced that it would stream only rented content and that TV episodes would be available at a lower price point of $0.99. With these changes Apple addressed weak points in its video strategy, which had caused lackluster sales. However, while consumers may be pleased it seems that the lower price ponit is a point of contention with the television networks. So far only ABC and FOX have signed on to Apple TV, and many speculate that ABC did so since since Steve Jobs is on the board of directors for Disney while in FOX got the OK since Rupert Murdoch is interested in working with Apple on iPad projects that support Newscorp’s publishing business.

Ignoring political alliances, I wondered just what the floor price should be for an Apple TV rental. The blog TVByTheNumbers had a provocative post, hyposthesizing that on average broadcast networks make $0.80 in advertising per viewer during a one-hour broadcast show.

CPM of $25 = $0.03 per view x 32 spots = $0.80 per viewer per episode

I considered this $0.80 should be the benchmark by which a substitution view should be judged. I then set out to estimate the revnues other platforms created on a per viewer basis and compare. The revenue models accounted for the following factors:

• Revenue stream (advertising or user payment)
• Advertisements per episode stream (applicable only to Broadcast TV, Hulu and Hulus Plus)
• Viewers per episode stream (dependent upon the delivery screen)
• Viewings (greater than 1 if the episode has been purchased)

I decided to ignore advertising commissions and distribution fees, which could be a major factor for networks to estimate the benefit, or lack thereof, in distributing their shows via iTunes and Apple TV. At the end of this post are all the calculations for each of the platforms. The following graph summarizes the results:

Even with the higher CPM prices (cited in the Appendix) it seems that Hulu offers the lowest revenue per user. However, Hulu Plus’ dual revenue stream (similar to cable TV), which accounts for a $9.99 monthly fee as well as advertising, jumps the gap and manages to post the highest revenue per user, clearly the winning model. The per-episode purchase models of Amazon and iTunes also pose a decent revenue of $0.66 per viewer while Apple TV’s rental model comes in at a lower $0.50 per customer, which might be too low for certain networks.

As I mentioned before this price doesn’t reflect any distribution fees that Apple might take so the comparison for iTunes and Apple TV might not be accurate. I might also be ignoring other factors. For example, episode purchases through Amazon might have more viewers per episode than Apple iTunes since the Amazon service has more streaming options to televisions.

Another thing to consider is that although broadcast television may take in around an average of $0.80 per viewer during every hour of primetime, these viewers are also likely to continue watching the same channel, contributing to further revenue on the channel during the next show. They are also going to be exposed to TV spots promoting the network’s other content. These are benefits that would might be incurred towards a limited extent with Hulu (which does promote a network and its other content), but would be completely absent with Amazon and Apple. Therefore, there is a much larger set of intangible benefits to a viewer watching a show on a network, that can’t be simply accounted for in the subscriber, rental or advertising revenue of alternate platforms.

I want to also highlight that DVDs are sold after a television show ends, so this aggregate revenue stream doesn’t directly compete with a broadcast audience like Hulu, Amazon or Apple’s services, so it has a different set objectives of to fulfill; not so much to compensate for an audience which is not watching the show on television as helping pay for the production costs- typically a broadcast production only covers 50% to 75% of its costs through broadcast distribution; the rest has to be recouped through syndication and other sources like DVD sales.

Even though I do think these models are inherently limited in their ability to compare the platforms, I still believe the comparison illustrates well some of the factors that are involved in the pricing and negotiation of these deals, and indicate why the new Apple TV rental model is not currently accepted by CBS, NBC and other networks.

Appendix

For Hulu, I calculated the advertising based on a CPM of $63 since according to Wired their rates run about two to three times that of broadcast television. This sounds a bit high to me but it’s possible since the Hulu has better targeting, higher valued demos, and lower commercial skipping/avoidance than broadcast TV.

Hulu: CPM of $63 x 6 spots = $0.38 per viewer per episode

In the case of Hulu Plus I added the $9.99 monthly fee, divided by 18.8 episodes per month (this was estimated by taking the average monthly minutes per Hulu viewer by 47, 44 minutes of content plus six 15-second spots).

Hulu Plus: $9.99 monthly fee / 18.8 episodes = $0.53 in fees per episode + $0.38 in ad revenues = $0.91 per viewer per episode

Since Amazon, iTunes and Apple TV are strictly purchased or rented models, advertising was not part of equation. For Apple TV I assumed that an average of two viewers would watch each rented episode since it streamed to a television. In the case of Amazon and iTunes I assumed an average of only 1.5 viewers since their models could stream to computers that inhibited group viewing. I also assumed that content purchased via Amazon and iTuens would be viewed more than once.

Amazon: $1.99 purchase fee / 1.5 viewers / 2 viewings = $0.66 per viewer per episode
iTunes: $1.99 purchase fee / 1.5 viewers / 2 viewings = $0.66 per viewer per episode
Apple TV: $1.99 purchase fee / 2 viewers / 1 viewing = $0.50 per viewer per episode

The model for DVDs was similar to iTunes and Amazon, only substituting a $2.50 price per episode based on the retail price of $60 for a DVD set with 24 episodes.

DVD: $2.50 purchase fee / 2.0 viewers / 2 viewings = $0.63 per viewer per episode

Facebook has been in the news a lot lately, sometimes making good headlines, other times bad, and still other times it’s gotten ugly. The good news was actually great- Facebook announced that it had reached 500 million registered users. This is especially impressive since two years ago they had only 100 million users. The 300% growth has mostly resulted from expansion into older demos and within foreign markets. At the same time MySpace has actually been losing users.

Although Facebook membership has grown as a whole, the bad news is that certain key segments are shrinking. Inside Facebook reported a decline for active 18- to 44-year-old U.S. users for the month of June. This could be a sign of “Facebook fatigue” by early adopters that have outgrown the site. Perhaps un-coincidentally, the American Customer Satisfaction Index also reported that Facebook is perceived to to offer poor service due to issues related with privacy, spam and functionality.

Another bit of bad news hit Facebook when a businessman said that he had an old contract signed by Mark Zuckerberg granting him a majority stake in the company. While one Facebook lawyer said that they were “unsure” if a contract had been signed, Zuckerberg later clarified in an ABC interview that “…we are quite sure that we did not sign a contract that says that they have any right or ownership over Facebook.”

All of these news stories coincided with the release of a new trailer for “The Social Network,” an “unauthorized” movie about Facebook that comes out in October. The movie is directed by David Fincher whose previous work (Seven, The Game, Fight Club, etc.) is dark and largely of society. Unsurprisingly the trailer paints an ugly portrait, not just of Zuckerberg but also of social networks.

I also recently heard a journalist’s take on Facebook. David Kirpatrick, author of  ”The Facebook Effect: The Inside Story of the Company That Is Connecting the World” came to speak at Books & Books about his new book. He has an overall positive opinion of Facebook and attributes the site’s success to three factors:

1. “Real” Identity: Unlike other social networks like MySpace Facebook requires all users to base their profiles on their individual real-life identities and use real names. This validates user profiles, provides a greater sense of security and leads to more valuable communication between network members.
2. Viral Nature: Ideas and relationships grow in a viral manner within Facebook, strengthening the site as a communication channel.
3. Communication: Facebook began as a basic platform but with its current features and its large user base it now provides users with the infrastructure to communicate on a level comparable with mass media. According to Mr. Kirkpatrick, Facebook empowers any of its users to become “Walter Kronkite.”

David Kirkpatrick giving his talk at Books & Books for "The Facebook Effect."

Mr. Kirkpatrick also said that Mark Zuckerberg was “an amazing visionary” and a “combination of Lenin and Kerouac.” He also didn’t agree with new Facebook movie which seems to paint Mr. Zuckerberg as “evil.”

Mr. Kirkpatrick did admit that Facebook needs to improve how it handles privacy issues. He read an excerpt from the book, which mentions how Mark Zuckerberg espouses openness, saying that “dual identities are impossible” in today’s society where transparency is the norm. This is where Facebook has gotten it wrong in the past. If Facebook doesn’t address these issues with greater clarity and transparency, “The Social Network” might actually galvanize a great deal of negative sentiment against the site, leading into a larger exodus of users from Facebook, perhaps to Diaspora, an open-source alternative, or “Google Me,” a social network that Google is rumored to be working on. While it’s not likely that sufficient users would leave to dent Facebook’s overall user numbers, an exodus by young and tech-savy users would be a very ugly headline for Facebook, denting the service’s image and impeding its value offering to advertisers. Of course Facebook is aware of this threat and of the need to adjust itself. As Zuckerberg said in his ABC interview, “I think what people really want is control. And building tools to make it so that people have the control that they want, that’s our job, right. We work really hard to make it is as simple as possible.” It will be interesting to see how Facebook evolves during the next six months to address these issues.

The World Cup is almost into the second round but the real competition might be taking place behind the cameras, between the broadcasters. In the U.S., two companies have television broadcast rights: Disney (ABC and ESPN) has the English-language rights and Univision (Univision, Telefutura and Galavision) has the Spanish-language rights.

It was expected that Unvision would do well in the ratings since their Latino audience is generally regarded as being more fanatical about soccer than the “gringo” viewers of ABC or even ESPN audience. This proved to be the case during the inaugural match when Univision drew 5.6 million viewers, almost double the audience of ESPN. However, Univision did not beat ESPN during any of the following seven matches, and got especially trounced during the England versus USA match which was attracted 10.8 million viewers on ABC; the largest audience for any U.S. World Cup match since 1994 .

The strong ratings for Univision and ESPN demonstrate both the strength of Univision (to compete effectively in sports against ESPN) and the growing attraction for soccer in the U.S. (since the ABC ratings have surprised most media pundits). It’s been difficult to get information for later telecasts but Univision did issue a press release for the Mexico versus France match noting that their audience of 5.8 million was double ESPN2′s and the most watched game to date for Univision during the 2010 World Cup. Odds are strong that this record will be broken by this Sunday when Argentina plays Mexico in a second-round match at 2:30 p.m. This is also likely to be another “victoria” for Univision against ESPN.

Although I really love my new job in online advertising sales, as I previously worked for 12 years in TV, I am still irked when I hear media pundits declare the inevitability of television’s demise. It was thus with some sense of reassurance and satisfaction that I recently read the positive report by The Economist of the TV industry “Changing The Channel,” but perhaps it would be more aptly titled “TV Ain’t Dead Yet.” Among the report’s key points:

• Increased and better programming options: Clearly television is no longer the domain of the “big three” networks. A myriad of networks now proliferate resulting in greater programming options which satisfies more diverse interests, but also creates increased competition which improves overall quality.
• Increased viewing options: Besides having more things to watch consumers now have more options on how or when to view it. First of all there are more sets now in households. Secondly there are other platforms for viewing (iPods, Hulu, etc.). And finally there are also adjunct devices which allow consumers to record programming or view it on demand.
• Increased consumption: Programming and viewing improvemetns have yielded greater total consumption. On average a U.S. viewer watches over five hours of television per day, about a third more than what a person normally estimates.

The report also busts five myths surrounding the television industry:

• Myth #1, Death by DVR: Although DVRs have penetrated 34% of the market, time-shifted viewing is not threatening television’s advertising business model. Viewers will almost always watch live programming before considering recorded programs. This is backed up in a recent study by Duke University’s Fuqua School of Business which finds that 95% of people watch television live.
• Myth #2, Commercial Aversion: Even without DVRs it is believed that people ignore or evade commercial breaks, but a recent study by the Council on Research Excellence indicates that “TV advertising and programming promotions reach 85% of adults daily.”
• Myth #3, Online Viewing Cannibalization: It is also believed that online viewing is hurting television ratings but the average YouTube viewer watches only 15 minutes of video per day on the site, compared with five hours in front of an actual television set. Online video certainly is an interesting, high-growth market, but it’s not substituting television.
• Myth #4, Shift to Mobile TV: A great deal of hype has also been given to to mobile TV, although it has yet to take hold in any country other than Japan or South Korea. And even in those markets it has yet to find a viable business model since mobile TV is free and advertising CPMs run only 10% of the TV market rate.

As much as I enjoyed the report I was disappointed that it barely touched on the potential of targeted television advertising, perhaps since it’s a technology which has taken so long to be applied in the industry. Combing the mass audience of television with the audience targeting capabilities of the internet would immortalize television, not that it’s going away anytime soon.

Back in June 2009 I conceived of what Apple’s, then rumored, touchscreen device might look like and how it might be used. One month ago Apple finally unveiled the iPad ; it only mildly resembles my conceptual model but it does embody a simple yet versatile multimedia device with a lot of potential. Since its introduction some have dismissed the iPad as nothing more than an oversized iTouch and while this description is relatively accurate it fails the recognize its intrinsic utility and why it will be such a huge success.

My presupposition of the iPad on the left and Steve Jobs’ actual product on the right.

The iPad’s intuitive user interface will appeal to less tech-savy users. As mentioned in the January 31 podcast of Six Pixels of Separation the device will remove a lot of “metaphors and architecture… inherent to laptops that deter many older users from using those devices.” For similar reasons, as well as its compelling gaming and media apps, the iPad will also attract younger users, even perhaps pre-adolescents. It was probably with this segment in mind the Paint App was demoed during the iPad presentation. The next generation of children will probably be mastering a touchscreen interface long before a keyboard or mouse. With its lower price point and conformability for recreational purposes, I also think that the iPad will become the cool, if not the standard, educational tool for younger users, replacing laptops as the device students tote from classrooms to recess. Therefore it should come as no surprise that a recent AdMob survey indicates that the Pad will be particularly popular with both the young and the old.

I also believe that the iPad will find fans in other segments such as at-home moms or dads, and sales people; as said on the Marketing for Coffee February 3 podcast, “(the iPad) will be a sales machine in a box… a good presentation tool,” echoing my similar prediction in June.

Although these segments will likely provide the initial demand for the iPad, I sincerely believe that it will find a very broad acceptance in the long run, and that it will become the device for consuming media on a personal level, just as a television is the device for group consumption. How often have you seen somebody use a laptop or BlackBerry while watching television? It is pretty much commonplace but neither device is ideal- a laptop is large and sometimes unwieldy, and a BlackBerry or any other “phone” device  is too small and limited. Although the iPhone and iTouch greatly expanded the range of the latter category, they are still a bit too small. The iPad is the “Goldilocks” solution that fits the situation just right.

So if the iPad is so great, how many will Apple sell? Pricing is the critical factor to consider. Apple announced six different initial models, probably to give options for every budget and to increase market penetration. The lowest priced model, a 16GB Wifi iPad, will cost $499 while the high end 64GB 3G model will cost $829. It is worth remembering that the iPod Touch sold over 13 million during its first 15 months, and began at price points of $299 for 8GB and $399 for 16GB, not too far from the low end iPad model. It is also worth noting that the iPod Touch is Apple’s undercover hit- iTouches are estimated to be 40% of the 58 million iPhone OS devices sold worldwide. Given it genuine utility and the market performance of the iTouch , I believe that the iPad will exceed most analysts’ sales predictions, which range from 1.1 to 7 million units for the first year.

An article today in the Financial Times mentions how Apple is supposedly pressuring TV networks to cut their episode pricing on iTunes in half, from $1.99 to $1. The price cut indicates that television sales have been lackluster. While exact iTunes sales information isn’t offered, it is known that Apple had accumulated sales of 15 million TV episodes in February 2006, 50 million in January 2007 and 200 million in October 2008. Based on this, in a recent in November 2009 I projected that Apple should have then reached sales of 86 million episodes.

I extrapolated the videos sold at December 2008 and 2008 on the speeds implied between official announcements. For example:

(200MM at Oct 16, 08 - 50MM at Jan 10, 07) = 150MM/645 days = 230K sales/day

50MM at Jan 10, 07 + (230K sales/day x 355 days) = 132.6MM sales at December 31, 2007

Utilizing this information I then calculated the average sales per user. Based on my calculations these average sales have dropped since 2007.

The bottom line is that Apple needs to rework its video strategy. The price cut attempts to address the issue. Why should iTunes customers pay $1.99 for a one-hour TV episode when they can spend the same amount for a game that they can play hours with? Apple understands that iTunes customers make this comparison, and that a TV episode, which is watched perhaps twice or three times, especially when repeat viewing require a user to store the video, taking up half a gigabyte of drive space, resulting yet another deterrent.

It’s also possible that Apple’s current roster of video platforms (iMac, MacBook, iPod Classic, iTouch, iPhone, Apple TV etc.) are simply not “fantastically great” enough for video watching due to portability (in the case of the computers) or screen size (in the case of the portable devices). Tomorrow Apple is presenting a new device, which could turn out to be the perfect device for video watching. It might finally convince iTunes customers to buy more TV episodes. It may also persuade Apple’s TV production partners to go along with the new iTunes pricing plan.

I wanted to follow up yesterday’s note on cable carriage fees by imagining a model that would determine such fees, at least partly, on the relative amount of audience that a channel attracts.

It occurred to me that such a model would be well suited for a digital subscription service, since it could faithfully measure the viewing audience for each channel on its lineup.  I decided to try and create such a model based on the parameters of the new TV subscription service that Apple is rumored to be developing. Supposedly Apple is offering broadcast networks a carriage fee of somewhere between $2 to $4 per subscriber while cable networks are being offered between $1 and $2 per subscriber. These top end of these fees run more than double what cable pays; a necessary compensation since the service will not carry advertising, eliminating a key revenue source for the networks, especially the broadcast nets.

Paying $4 per broadcast network would total $16 in programming costs to Apple. Also paying $2 per cable network with a 10 channel lineup would add on $20 in costs, totalling $36 per subscriber, well past the $30 price tage the service is rumored to have. Therefore, a viable business model for Apple’s service requires lower average carriage fees, but still needs an high upside to convince the networks to join.

An audience-based model that distributes fees according to viewership would allow for:

1. High ceilings for the carriage fees to the networks.
2. Fair compensation to networks for ad-based television viewing audiences cannabilized by Apple’s service
3. A lower total programming cost to Apple.

My proposal is to give each broadcast network a $2 base fee, with an additional $10 distributed among the four networks based on the share of viewing a subscriber gave to each one. Each network could have the possibility of reaching $4 per subscriber if they received 100% of the viewing for a given subscriber. A 25% viewing share would add $0.50. The following two examples demonstrate how it could work.

A similar model could also be implemented for the cable networks by simply substituting lower fees: a $1 flat fee per channel and a smaller distributed fee of $1 among 10 channels.

I realize that this model does not allow for much room in growing the channel lineup since it would incur significant new costs, but this could be planned for depending on Apple’s programming strategy.

In any case I do believe that this type of value-based fee pricing follows the spirit of business models espoused by Google (I am currently reading Googled by Ken Auletta), which efficiently allocate cost to value, and is the approach that will win out in the digital distribution of media.

Yesterday a deal was announced between Univision and YouTube whereby the U.S. Hispanic network would bring a “hefty stable of short- and long-form programming to YouTube.” While this is “the first time any Univision programming is available on the Web outside of its own properties” a great deal of the network’s programming, particularly material from Televisa, has been illegally posted on YouTube. Back in February TubeMogul estimated that this content drawing was over double any other U.S. network.

Number of views of clips from the 10 most-pirated shows on each major network
Univision: 583,750,247*
Fox: 289,074,325
ABC: 260,299,418
CBS: 127,334,729
NBC: 120,890,835
Source: TubeMogul
*Includes Televisa content pirated from El Canal de las Estrellas

As I mentioned in a posting in February, Univision’s view count is mostly attributable to Televisa content, specifically material copied from El Canal de las Estrellas where their telenovelas air months ahead of Univision. Similar to how different regional premieres have encouraged piracy in the movie industry, pirated telenovela clips have flooded YouTube to the delight of thousands of fans.

The piracy seems to have gone on unabated in part because Televisa and Univsion are still wrangling over the digital broadcast rights of these telenovelas. This protracted battle is the focus of an excellent article today in Ad Age.

…perhaps because of the animus involved, Televisa simply ignored the fact that fans were uploading its telenovelas to YouTube… Televisa has become more aggressive about policing YouTube over the past year… The number of pirated clips of Televisa-produced Univision shows are down 53% since February, according to TubeMogul.

Even if the number of clips has been cut in half, plenty of Televisa’s content can still be seen on YouTube, something that would never be permitted by a Hollywood studio for an equivalent U.S. television series. A quick search of just recent Televisa telenovelas will yield dozens of clips that have each garnered over 100,000 views. Just the telenovela Sortilegio, which premiered in October on Univision, has garnered over 70 million views on YouTube. What’s worse, I also found a shady website called SortilegioTV.com where full episodes can be streamed for free, although a disclaimer below stipulates:

The streaming videos that has been found here are hosted by third party. Any copyrighted videos is a property of the original copyright holder. Therefore any violations, the owner of the blog is not liable.

While this is chaotic, at least it indicates that there is a tremendous amount of demand for Hispanic content online. Obviously, Univision’s decision to launch this new YouTube channel is an effort to consolidate its presence in this space, with or without Televisa telenovelas. In the meantime, perhaps Televisa can afford to let its content be pirated in YouTube since it probably won’t affect its business interests in Mexico where the company recently launched its own video portal, Tvolucion, similar in style and content to Hulu. Tvolucion seems to fullfill the wish of every telenovela fan, but only if they’re in Mexico. ‘Foreign’ viewers are notified that the material is not available in their market, although Tvolucion is “working on offering their catalog to a greater number of regions.” They are then invited to let Televisa know where they’re based.

It’s possible that Televisa is angling to have some sort of presence online in the U.S. market, thus bypassing their broadcast partner Univision and becoming a direct competitor within the online space. However it’s more probable that the two companies will compromise on an arrangement whereby Univision will gain the online rights for the telenovelas, with certain restrictions or windows in place, just as Hulu and Netflix have arranged with other content producers.

In any case this does makes me realize that eventually the U.S. Hispanic online market will be much more complex than what is currently seen in traditional media.

Apple has an impressive position in the music market. Through its iTunes store, the company currently has a 69% share of the U.S. digital music market and a 25% share of the total U.S. music market. Their position isn’t as strong however in the video market. This is especially apparent when you compare iTunes music and video sales on an average unit sold per user basis.

The iTunes store launched in early 2003 and by the end of the year it had almost 700,000 registered users. With the launches of the iPhone and iPod Touch, iTunes greatly expanded its customer base and they now reach over 100 million users.

The larger user base consequently led to accelerated musics sales. In early September total song sales reached 8.5 billion; they will probably surpass 10 billion in early 2010. (Update: Effectively, Apple reached the 10 billion songs sales point on February 25, 2010)

Looking at the average annual songs sold per registered user, iTunes initially had a very high amount- over 60 songs per user during its first year. This makes sense given that most of iTunes’ initial customers were early adopters of iPods and iTunes and probably hard-core music fans. After 2003 average song sales dropped off, but steadily grew back through 2007, until the user base ballooned (with the introduction of the iPhone and iPod Touch), resulting in another drop in 2008. However, the average has recovered between January and September 2009. Perhaps the latest wave of iTunes customers are becoming music customers.

As I mentioned beforem within video the picture hasn’t been as pretty. Total video units sold has been a fraction of average songs sold per customer. I thought that video sales would’ve picked up once more video-capable Apple devices were in the market (iPhone, iTouch, etc.) but that hasn’t been the case. Average sales per user dropped off in 2008, again, due to the increased user base, but video sales have not recovered like music. Rather there have been two sequential declines in average video units sold per user.

So is there a possibility that Apple will rectify its video position? Since April I have been speculating on the highly rumored iTablet. I believe that the device will be a multimedia marvel, revolutionizing gaming, digital magazines and digital video in particular, much as how the iPod affected the digital music industry. What was missing from my initial analysis was how Apple would need to couple its device launch with an evolution of iTunes, in terms of its video business model.

While iTunes does offer unparalleled access to content from many producers, it is easy to understand how many consumers might be stifled by its pay-to-own business model. An 45 minute standard-definition television episode on iTunes takes up about 450 MB of storage space. That is about 50 times more than a song. A song costs only half as much as the TV episode ($0.99 to $1.99). Therefore the real prohibitive cost to consumers from buying video content is disk space and not the purchasing price.

The logical solution for iTunes would be to implement a video subscription model. This week such a service was reported on at AllThingsDigital and Disney is rumored as being one the service’s early partners. Such an option combined with the “iTablet” would give Apple a much stronger customer offering for video, and would probably propel the company’s position within the market during the next few years.