iTunes, HBO, and Variable Pricing

Once upon a time, content pricing on iTunes was strict and unwavering. Every song was $0.99, no less, no more, and the music labels went along. They screamed and complained and cried... but they went along.

After all, it was Jobs way or the highway.

But in full deal-making mode, Apple just announced that HBO has joined the iTunes universe, with programs from some series priced at the "standard" $1.99 TV rate, and others a buck higher at $2.99.

And now, some pundits proclaim, the floodgates are open, with anyone and everyone now about to demand special dispensation.

But will they? And even if they do, will Apple grant it?

HBO, after all is a special case. Unlike NBC or ABC or CBS, which broadcasts their shows to anyone and everyone for free, HBO is premium content for which subscribers pay extra. As such, they rationalize, their content is more valuable, and they should be able to charge accordingly.

The logic is easy to understand, but will users open their wallets and buy into it?

Two things can happen here:

First, people want the content, and are willing to pay for it. Apple and HBO are happy, and the play of life goes on.

Second, Joe Sixpack decides that three bucks a pop for a TV show is outrageous, and refuses to pay. In which case he buys something else, or simply goes elsewhere.

Whereupon HBO has two choices: stay the course, or drop prices.

Note that HBO is already engaged in a sneaky bit of market research regarding price elasticity on iTunes. Some shows, like The Wire, are priced at at Apple's standard $1.99 each. Others, like the Sopranos, are at the new $2.99 pricepoint.

HBO already has tons of viewer data for each show, plus sales data for DVDs. They know just how popular each series is, and as such, what demand should be. So if Tony's sales are significantly off projections while those of The Wire hold true to form then price is definitely an issue.

They'll also be able to see just how badly online sales affect DVD sales, and even if iTunes has a major impact on cable subscription rates.

That said, from my perspective the whole thing smacks of someone in HBO-land being overly protective. After all, it's been proven time and again that it's better to cannibalize your own sales than let someone else do it for you.

By pricing their content higher, they run the risk of someone deciding that ShowTime's Dexter is a better deal. Or having them decide to rent the DVD from NetFlix, or borrow it from a friend. Or even bypassing legitimate channels altogether and going the P2P route.

Like it or not, HBO is competing not only against cable and Dish but against free. All Apple and the iTunes store can offer, really, is convenience, some measure of guaranteed quality, and an air of legitimacy.

But people will only pay so much for those things.

Will you?

Let me know. In the meantime, I'm going to watch Season 2 of Dexter.

Comments

[James R. Taylor]

Season Two of Dex is out? Why didn't someone say something!!!