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

Two weeks ago ABC broadcast the final episode of Lost, a popular show that whose ratings I’ve been posting about every now and then. The last episode tallied 13.5 million viewers, which was more viewers than the season’s premiere (something that hasn’t happened since the first season) and the most viewers for any episode within two years.

As I’ve noted before, Lost consolidated a strong fan base during the first season, which led to a strong second season premiere. Over the course of that and later seasons however, the show steadily “lost” ratings. This could be attributed to a number of factors including its convoluted plot line, the 12 week hiatus the show took in the middle of the third season, the writers’ strike in 2007 which led to short fourth season, etc.

The show hit a ratings bottom in the twelth episode of the fifth season which had only 8.29 million viewers. The final sixth season saw a significant ratings bounce back, probably since a lot of viewers were interested in how the series was going to conclude.

Another factor that may have affected Lost’s downward ratings was overall viewership at ABC. The network was strong during the 2004-2005 season when Lost, Desperate Housewives and Grey’s Anatomy all premiered. Since then the network has had a few more hits, notably Dancing with the Stars, but has yet to produce another critically acclaimed drama. This season ABC did break out Modern Family this season, which I believe will run at least three seasons, but the “alphabet network” also lost the most viewers, both in general and in key advertising demos. It seems critical that ABC find some new strong shows during the 2010-2011 season.

Last night the final season of Lost began with a double episode premiere, garnering an average of 12.1 million viewers. The good news is that this is about 6% more than last season’s premiere, and it’s also the first time since Season 2 that a premiere has a larger audience than its precursor. The better news is that the audience growth over-indexed in the 18-49 demographic, attracting more than 10% than last season.

The problem is that comparing yesterday’s performance with last season is somewhat lax since new audience lows were marked for both the premiere and finale last year. The 11th episode of last season also garnered the smallest audience of any first-run Lost episode to date: 10.8 million during the 11th episode. This was a far cry from the performance of first half of Season 2 when Lost was attracting over 20 million viewers.

As I mentioned in a posting back in March 2009, Lost has “lost” its audience due to its complicated serialized plotline, a weakness which was exacerbated by a long hiatus in the middle of Season 3 as well the 2007 writer’s strike which delayed and shortened Season 4. Luckily this season seems to be free from any similar debilitations so the series might end up growing its audience over the course of its last season, which if it were to happen might yield a rumored Lost spin-0ff.

Most of the new broadcast television shows have premiered during the past three weeks and I thought it was time to draw a comparison among the top performers.

The number one show in terms of overall viewers was NCIS, with a total audience of 18.9 million. Unsurprisingly, NCIS‘s lead-out and spin-off, NCIS: Los Angeles, also had a strong premiere with 1.74 million viewers and placed in third. In between at second place The Jay Leno Show drew 17.7 million viewers. ABC placed two shows in fourth and fifth place (Dancing With the Stars and Grey’s Anatomy), but CBS nabbed by far the most spots in this list with six spots.

The 18-49 demo ratings tell a much different and more important story. CBS loses its top position, placing half as many shows. The top spots here are for Grey’s Anatomy, House, The Jay Leno Show, Family Guy and The Cleveland Show. That’s three out of the top five for Fox.

In terms of overall performance I don’t have enough data to draw much information. TVbytheNumbers.com does have an excellent post comparing the broadcast network performance during the first week of this Fall season to last year. The only networks that are showing positive growth in overall viewership and within the 18-49 demo are MyNetworkTV and CBS.

I did draw a comparison between the network ratings by averaging out results within three time slots. While not indicating that a particular network is leading, these results do show that the highest ratings were drawn around 9:00 p.m.

This result probably has a lot to do with DVR viewership. These ratings are Live+SD (same day) meaning that time-shifted viewing before 3:00 a.m. the same “night” is included. Furthermore, it has also been reported that during this Fall season DVR viewing increased from two hours to four or five per night and given that shows in the 9:00 p.m. time slot have normally been the most popular for DVR use, these heightened ratings at 9:00 p.m. make sense.

The downside is that shows at 10:00 p.m. suffer, competing not only with shows in their own time slot but also with time-shifted programming from 8 or 9:00 p.m. There might be an exception to this trends and it’s The Jay Leno Show‘s whose timely content may stave the DVR push from earlier time periods and attract audiences for live viewing. The Jay Leno Show has lowered DVR viewing within its time slot from 70% to 46%. A higher proportion of live viewing may also mean that the show’s audience is opting away from watching other timeshifted programming, but that could only be proven by measuring overall timeshifted viewing at 10:00 p.m.

Back in May I published a post, Fall 2009 TV Lineup, which showed the new Fall lineups for ABC, CBS, Fox and the CW. During the past week the post has risen in popularity since the new Fall season is just around the corner. It actually begins this Saturday with the season start for Saturday Night Football on ABC, and then continues on Tuesday with the CW’s premieres of 90210 and Melrose Place.

Instead of writing out a long, tedious list of the shows’ premiere dates I’ve decided to publish an online calendar with all the information.

This calendar is an iCalendar Calendar Data file (.ics)  and can be easily subscribed to, turned off and managed in iCalendar, Google Calendar or Outlook. Here is the link to subscribe to:

http://betweenthescreens.com/calendars/Fall_2009_TV.ics

The calendar is currently updated with all the series debuts and season premieres for the five broadcast networks I mentioned before. The biggest clashes seems to be occurring during the third week of September when 33 new or returning shows will premiere during the span of five days.

I will be adding more networks in the near future; all updates will automatically be sent to subscribed users.

This week the fifth season finale of The Bachelorette garnered 9.9 million viewers, easily winning the night in terms of total audience and the major demos. In terms of past seasons, this finale had the highest ratings of the series in five years. Still, it is less than half the epic audience that the finale for the first season had, probably as a result of the popularity of the debut Bachelorette, Trista Rehn, who was the runner-in the first season of The Bachelor and had a significant following.

In terms of The Bachelor, the second season finale with Bachelor Aaron Buerge has had the highest audience. Season 13′s finale actually places in second.

Incidentally, ratings seem to have a low correlation with relationships’ success in this series. Most couples from The Bachelor break up after a few months. The only couple from The Bachelor that are still together is Byron and Mary from Season 6, one of the lower rated finales of the series. Sadly the situation is similar with The Bachelorette; couples from Seasons 2, 3 and 4 have broken up. However, Trista from the popular first season did marry her fiancee and they had two children.

This week all the major broadcast networks held their upfront presentations, announcing their upcoming fall schedules and subsequently the new shows they would be presenting. I put together some handy-dandy color-coded charts to navigate the new landscape. It looks like ABC and NBC are going to presenting the most new material, while Fox has managed to do quite a bit of rearranging with their existing shows. CBS is making the least changes since they’ve performed the best this season.

Update: You may be interested in new online calendar that I’ve published for the Fall 2009 TV season. More about that at this posting.

This past week one of my favorite television shows, Lost, ended its fifth and penultimate season. I am sad to say that I was not completely satisfied by the finale. Judging by the show’s ratings I may not be alone in my dissatisfaction. As analyzed in a previous posting the show seems to have  ‘lost’ audience during its run, perhaps as its storyline has become more convoluted and difficult to follow.

Unfortunately, the ratings did not improve during the last episodes of this season. This season’s finale, with an average audience of 9.27 million, set a new record low for any Lost season finale. At 9.27 million viewers it is less than half of what the first season’s finale attracted in May 2005, when the show’s audience was ascending rather than the pursuing the current course. This season’s finale also marks the fourth lowest audience for any Lost episode to date. Not a great way to finish. It may be comforting then that the series will conclude next year with its sixth and final season.

I have always been a huge fan of the TV show Lost so it is with some regret that I noticed that this week’s episode reached the series’ lowest audience to date: 8.82 million viewers.

While the show started strongly, with the second season premiere attracting more viewers than any episode during the first season, it seems that the series began to lose viewers during the middle of the second season, and then continued dropping thereafter.

The large gap in the middle of the third season is a the 12 weeks hiatus the series was put on, as a result of the decision to present new episodes back to back during two blocks in the fall and early spring. The second block was also coupled with a timeslot change, from 9:00 to 10:00 p.m. These moves seem to have lowered the show’s audience substantially, with no episodes during this second block attracting over 15 million viewers.

The fourth season began late, about six months after the conclusion of the third season, partly as a result of the writers’ strike of 2007, which also shortened the series’ lifespan to 14 episodes. Still, the show returned to a 9:00 p.m. timeslot, which is why perhaps the initial episodes reached over the 15 million viewer mark, but after the midle of the season, the show began to lose audience.

The fifth and current season premiered about this January, after a six months absence, which in retrospect may have been too long. This season’s premiere of 13 million viewers was its lowest by far, and the episodes to date have also demonstrated a clear trend towards declining viewership.

Why has this audience drop occurred? Besides irregular scheduling and long absences, it seems to me that the show’s ability to maintain a mass audience has been adversely affected by its convoluted plot line. This style attracts many viewers such as myself, and is best explained by the show’s creator, J.J. Abrams, in this TED video.

[ted id="205"]

While many enjoy the mysteries, ‘mythology,’ and complex character relationships inherent to Lost, it demands such intense attention that it also seems to drive other viewers away. Besides alienating frustrated viewers, it seems to me that Lost has a bigger problem- attracting new viewers. Even with a relatively complex show like 24 a new viewer can tune in at the beginning of a season with relative ease, and enjoy the plotline almost as much as veteran viewer who has been watching the program since its inception. In the case of Lost, it is very difficult to come in at the beginning of any season past the second and feel welcome since there are so many groups and histories (Oceanic Survivors A, Oceanic Survivors B, Dharma Initiative, The Others, Charles Whitmore’s organization, etc.). Plus since last season with the time travel you have different chronological timelines that you have to track. Try explaining all this to a newbie, and as great as ABC has done with it’s Lost recaps and explanations, tragically it seems that the show’s style is inherently constructed to increase churn. However, I am sure that I’m not alone in saying that I’ll continue watching every episode.

This morning I looked at this MediaPost article concerning a recent study by Magna Global of C3 and “live-only” 18-49 ratings for the major TV broadcast networks.

There are little if any differences between C3 and live ratings for the current television season. However, there is a noticable drop in C3 ratings from 2007 to 2008. Fox dropped 14% from 2.9 to 2.5, but I consider this to be somewhat inaccurate since it doesn’t take American Idol into account. Somewhat more concerning is ABC’s 13% drop from 3.1 to 2.7.

As I mentioned in a recent posting of top-rated TV “cash cows,” ABC’s pack of hit shows is diminishing in share. Ugly Betty, Grey’s Anatomy, Desperate Housewives and even Dancing With the Stars have lost audience this season, perhaps in certain cases by the writer’s strike, or perhaps by what some fans have determined to be significant change in the shows’ quality or attractiveness. I for one have not loved Grey’s Anatomy recent plot line involving a romance between Denny the Ghost (Jeffrey Dean Morgan) and Doctor Izzie (Katherin Heigl).

In response ABC is certainly trying to tweak their shows (last week it was anounced that cast members at Ugly Betty and Grey’s Anatomy are leaving). Cast and plot changes might help, as might the return of Lost; the fifth and penultimate season begins tomorrow night. I am also curious about  suspect next season’s crop of programming at ABC, which may include a return to primetime of the hit game show Who Wants to Be a Millionaire. In any case, what is certain is that ABC will try to stop their current momentum by whatever means necessary.