While we all contemplate the various issues regarding revenue for comics and where it will come from, let’s look at where we all assume it will be going: some variant of streaming content. With Apple—and the rest of the market—doing everything they can to kill off the DVD and “the cloud’ becoming the place from whence all jollies will emerge, it is still not a great source of revenue for the big players like Netflix and Spotify.
Netflix just released their quarterlies, and after the whole Netflix/Qwikster debacle, you might think the reason they wanted to split off the business of mailing out DVDs—obsolete technology via an obsolete delivery system—was because it was a money loser. In fact the opposite was true. The old media model was far more profitable. If you break that down, each streaming subscriber is worth only $2.40 in profit each quarter to Netflix, compared to $17.32 for each DVD subscriber. The old business was very lucrative. The new business kind of sucks. The economics are very different. The DVD business had fixed costs, while Netflix is forced to negotiate streaming licenses on a case by case basis with each media company.
In other words, Universal and WB and whoever are charging Netflix so much for their content that it’s not a very profitable business. And if you’ve seen the streaming options on Netflix lately, you know they haven’t been given access to the good stuff.
If you break that down, each streaming subscriber is worth only $2.40 in profit each quarter to Netflix, compared to $17.32 for each DVD subscriber. The old business was very lucrative. The new business kind of sucks. The economics are very different. The DVD business had fixed costs, while Netflix is forced to negotiate streaming licenses on a case by case basis with each media company.
The same is generally true for streaming music services like Spotify and Rhapsody. Here’s an example of a general business structure:
1. General deal structure: Pay the largest of A) Pro-rata share of minimum of $X per subscriber, B) Per-play costs at $Y per play, C) Z percent of total company revenue, regardless of other business areas. As stated previously, this means labels de facto set retail price (they also regularly negotiate floors on price, giving even less wiggle room), which limits the ability of the music service to develop ancillary revenue streams that aren’t siphoned off by the labels.
The above article notes that Pandora avoided these kind of deals by styling itself as a radio station —they must pay a per-song royalty but don’t have the Sisyphean licensing structure of the streaming services.
Of course, the reason why movie companies and record labels are charging all this money is to— theoretically—somewhere down the line give more of the profits to the content PRODUCERS—the Steven Spielbergs, Ke$has and Faith Erin Hickses of the world. So your “Free” streaming site may become as expensive as your cable TV by the time things settle down.
As someone noted somewhere in commenting on our comics economics post yesterday, one of the true costs of piracy is the DEVALUING of content. Once everything is free, it’s hard to convince otherwise decent people that it’s worth something. While streaming and distribution from the cloud is clearly how things are going—wait until the iTV comes out—only Apple and Amazon seem poised to take a reasonable cut via a per download cost.