Apple's 99 cent iTunes video play changes pay-TV forever

Jim O'Neil

Over-the-top delivery of content isn't really going to kill pay-TV, but it's going to change it forever.

A new study out from Altman Vilandrie & Co. and Peanut Labs says Americans watch twice as much Internet TV than they did a year ago. That's a little misleading because the numbers are so small--10 percent of the survey's respondents, up from 5 percent a year ago, say they're watching a full TV episode on the Internet daily.

But there's no doubt the number will continue to grow.

What isn't so clear is whether that means OTT content can really replace pay-TV delivered content, or that it will lead to a wave of consumer cord cutting. The study said only 3 percent of survey respondents in the 18-34 year-old demo said they'd cut the cord; but it also acknowledged that 25 percent said they'd "seriously considered" dropping their pay-TV service.

AV&C Director Jonathan Hurd--who oversaw the research--told me he didn't see cord cutting accelerating quickly, but rather considered it a force that would erode the pay-TV customer base over time. His rationale? As long as "high-value content" like sporting events was still available only via broadcast or pay-TV channels, those consumers would be hesitant to drop their services.

"I think on-demand purchasing will become a more important part, a major part, of user experience," he said. "As long as some content is not available, it will cause people to keep their cable subscriptions."

He's right, but today's news that Apple is nearing an agreement with content providers to rent TV episodes through iTunes for 99 cents to consumers for 48 hours at a time, brings the a la carte model of content delivery a lot closer to reality. It also represents--if the rumors are true that the content will be ad free--a big change in the way online video is monetized. Consider, for example, Hulu, which has struggled to return significant revenue to its three masters--News Corp., NBC Universal and Disney--using an ad-based model. While it says it expects to see $200 million in revenue from ads this year, that's just a drop in the $70 billion broadcast TV ad bucket. At 99 cents an episode, the iTunes model could see that revenue, well, in a week, especially if it had next-day access to shows like "Glee," "American Idol," and the rest of the Fox fare. That's a heck of an incentive for networks.

Consider, too, the success ESPN had streaming World Cup matches this summer, or that, increasingly, many of those major sporting events have made some content available to online viewers, with great results.

Is the Super Bowl going to be streamed live this year? Not likely, but the chances that it, the Olympics or some other landmark event will make it online are better now than they were a year ago. Although an iTunes' a la carte offering may end up costing viewers more, just as dining a la carte is more expensive than buying a restaurant's daily special, it may better fit the appetite of an increasingly finicky consumer. -Jim

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