Apple, 55 Cents, And Advertising

    January 24, 2006
    WebProNews Staff

Episodes of ABC series “Lost” and “Desperate Housewives,” available on a day-after-broadcast basis from Apple’s iTunes for $1.99, generate 55 cents for Apple and pass the remaining $1.44 to the network.

Apple earns less than double for a video download of those two top-rated shows than it does from a song sold on iTunes, Hollywood Reporter said in an article. Where Apple’s music take is about 29 or 30 cents per song from a major label, it gets 55 cents from videos.

Those cuts probably increase for content from providers who don’t occupy the top tier of the entertainment industry. But that $1.44 is important. The article noted how even at a “worst-case scenario” – where 20 percent of the viewing audience buys downloads instead of watching episodes on TV – generates an extra $15 million in revenue for the network.

A JPMorgan Chase analyst, Spencer Wang, commented in the report how that $1.44 exceeds the “estimated 57 cents in advertising revenue per user generated under the current model.” Nielsen analyst Larry Gerbrandt was also cited on his analysis that states content owners make about as much from downloads as they do from DVD boxed sets.

The Internet-delivered model received focus from Hollywood Reporter due to its impact on traditional advertising. Google and the rest of the online advertising industry have eaten up a lot of the profits that Old Media used to collect. Columnist Diane Mermigas summarized the conflict in her article:

Traditional media companies have an indisputable expertise in content production and solid touch-points with consumers and advertisers, just as new-media players have the high-tech flexibility and savvy to respond to emerging competitive challenges and opportunities. In the end, it all comes down to what it’s worth to the media players involved, as well as to consumers and advertisers.

Meanwhile, Atlantic Media’s Scott Karp posted how trust issues figure in the advertising future:

As technology unravels old media business models, the result won’t be a completely open marketplace. A handful of brands will still dominate – those that people trust.

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David Utter is a staff writer for WebProNews covering technology and business.