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

This past week Time Warner Cable came close to dropping the Fox Network from its system due to a dispute concerning retransmission fees. In case you aren’t aware, cable companies like Time Warner and Comcast pay networks for transmitting their channels on their systems. For broadcast networks that opt out of must-carry regulation these payments are called retransmission fees. For cable networks they’re called carriage fees. In both cases they have become more important given the recent drop in advertising.

Fox had been asking Time Warner Cable for $1 per subscriber. The counter offer was only $0.30 and SNL Kagan believes that they settled at $0.50 with a likely “increase over the life of the new agreement.” Since most networks receive less than $0.50 per subscriber Fox’s deal seems pretty good but based on Fox’s large audience it’s arguable that they should have gotten more. Fox’s primetime audience is double that of ESPN but its carriage fee is less than a fifth. Using a ratio of carriage fees to primetime ratings points, Fox stands at 0.22, below most networks.

Negotiations between service providers and networks are closely guarded so it is very difficult to ascertain just how deals are struck. Audience ratings are certainly not the only factor. ESPN attracts a lot of “hard-to-get male viewers, and even harder-to-get young male viewers” and its relatively high carriage fee is often justified because of this. Network bundling and company associations can also help boost fees. In any case it’s likely that the difference between network carriage fees, in proportion to their respective audiences, will lessen in the future.

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 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.

American Idol closed out its eighth season last night with an impressive total audience of 28.84 million for the two hour finale. On average the show had an audience of 24.33 million this season.

During this season there has been talk about how the show has lost some of its luster. There were even rumors about two of the judges leaving the show. Compared to past seasons the show’s audience has somewhat diminished recently…

…but it has holds the #1 spot among the most popular network programs, every year since 2004, and it is still attracting between 27% and 127% more viewers than the other top 20 competitors.

More than a comfortable lead in any race and a sure sign that American Idol will continue well into the future.

Last week was the season finale for Fringe, the new J.J. Abrams show. The series had a strong first season, finishing even stronger than it started. The final episode had a total audience of 13.5 million viewers, a record high for the series and 45% higher than the season finale for Lost, perhaps an indication of which series is now taking the mantle.

It probably helped that the series had American Idol as its lead-in since January 20th, during its last 10 episodes. Note the substantial spring in the following graph.

Episodes that followed American Idol are demarcated by a light background in the following graph. Before January 20th, House was the lead-in at 8:00 p.m. It should also be noted that repeat episodes of Fringe are demarcated by a dark background in the graph, aired in October, December and January.

Looking at just new episodes of Fringe, it seems that American Idol boosted its total audience 18% more than House (also no ratings slouch), giving Fringe an extra boost during its infant season.

It is not surprising therefore that Fox anounced today that next season two of its most promiment new dramas, Past Life and Human Target, are respectively programmed Tuesday and Wednesday at 9:00 p.m., following American Idol.

Fringe, incidentally, is being cut loose of its training wheels, and moving on to Thursdays at 9:00 p.m., following Bones.

One of this year’s most promising shows, Fringe is widely considered to be returning next season due to its decent ratings. Some viewers have often said the show has benefited largely from its current lead-in, American Idol, which often surpasses 20 million viewers. In order to properly judge the ‘Idol Effect,’ I compiled all of the ratings for the current season of Fringe.

Looking at the current season to date, Fringe has averaged 8.9 million viewers per episode. Within the 18-49 and 18-34 demos, the show has averaged 4.75 and 2.02 million viewers respectively.

The dark areas in graph above, during late October and between early December and early January, are days that repeat episodes of Fringe were aired. The average total audience for these episodes is 5.1 million viewers, 42% less than the season average. The light areas are days that Fringe followed an episode of American Idol. These days the show had an average audience of 11.46 million, 29% greater than the season average. Note the change in lead-in audience the American Idol portion.

Since Fringe has not aired a single repeat episode after American Idol, I decided to look at only new episode ratings in order to properly gauge the ‘Idol Effect.’

Taking into account only new episodes, Fringe had an overall audience 18% greater after American Idol than after House. However, in the 18-34 and 18-49 demos the difference was much less, only 2% and 10% greater, respectively. I had imagined that the effect would be much greater in these younger demos where American Idol is very popular, but the younger audience simply dropped off at a greater rate.

In any case, both House and American Idol are popular shows, and it is evident that Fringe was well positioned in its premiere season to succeed.

Last week it was announced by much fanfare at Fox News and MSNBC that CNN had finished in third place behind the other news networks for the month of March. How is possible that the founder and brand leader for broadcast news had diminished so much in the market?

I believe that this is a result of a broad sociological change in the United States that has dramatically shifted the marketplace towards polarized political stances, ocurring in part to due voter redistricting, as explained in this Economist article from 2002. This broad shift has subsequently led consumers to prefer opinionated and almost ‘biased’ news, which first led to the rise of Fox News, and later of MSNBC. As a result, media like CNN that are less opinionated and run the middle road become the ‘alternative’ in the marketplace and risk losing audience.

Personally, I am not a constant viewer of any of these three networks, but I do find CNN’s GPS with Fareed Zakaria to be an excellent program that always provides a distinct and serious look at current news topics. I highly recommend it to anyone looking for a fresh perspective.

In late January I did an analysis of Slumdog Millionaire, of its unique distribution and resulting ticket sales. Given the movie’s eight Oscar wins, I wanted to do an update on its box office performance.

Most important has been Fox’s steady buildup in the movie’s distribution, which has taken place in four major points.

1. November 12, when it opened up at 10 theaters
2. December 19 ,when it expanded to 589 theaters. This is just before Christmas.
3. January 23, when it further expanded to 1,411 theaters. This is one day after the Oscar nominations were announced and was probably intended to anticipate prospective awards audience.
4. February 20, when it reached 2,243 theaters. This is two days before the Oscars and is probably intended to capture interest after the movie, hopefully, won several awards.

This last distribution tier, above 2,000 theaters is the the normal opening distribution for major comedies, and it is interesting to see how Fox has reversed the normal path for distribution for Slumdog Millionaire.

This organic buildup is an alternative distribution model followed by movies can’t be expected to immediately attract a mass audience. A similar path was also followed for Crouching Tiger, Hidden Dragon, which opened up at only 16 theaters on December 8, 2000, and finally reached its distribution peak of 2,027 theaters on March 23, 2001, two days before the 2001 Oscars when it won four awards out of the ten it was nominated for. Subsequently the film’s distribution dropped to 1,628 two weeks later, and I am curious to see if Slumdog Millionaire will maintain a wide distribution for longer since it won so many awards including Best Picture.

In any case these tiers of distribution shown above have resulted in new peaks for the daily gross.

The latest peak will not be reached until next Saturday, since the Oscars took place on Sunday night. I estimate that it should be around $5.25 million.

Finally the movie is just about pass the $100 million mark. The movie’s growth should continue for some time and I will be sure to write up another posting when it begins to close its theatrical run.