V I D E O • A G E AP R I L 2 0 1 1 26 The industry is increasingly sounding like an economics textbook. If “macro” indicates a large license fee from broadcasters and cable network operators, “micro” must mean a myriad of little payments that producers and distributors can extract from the online universe. Purchasing content such as episodes of TV shows, movies and music (or “atoms,” meaning program segments) from iTunes, Amazon.com and On Demand services on television sets represent examples of micro-payments. Now the question is: Going the way of micro-payments, is it still a case of the much derided, neglected “analog dollars for digital pennies”? Undoubtedly, these little payments madeonlinearecurrentlyattractingagreat deal of industry attention, and a major question surrounding micro-payments is whether there is any “real” money to be made in these tiny monetary revenues. Among the international executives VideoAge surveyed, there was a consensus that the issue of micro-payments is not a case of analog dollars versus digital pennies, and there is, indeed, money to be found in micro-payments. One of the larger content companies that pioneered micro-payments is FremantleMedia,which,in2009premiered Sun Quiz Live, a show designed for micropayments that cost the equivalent of U.S.$490 an hour to produce. Micro-payments are not something new in the online business. It is a concept established by the music industry and ringtones that content companies are now trying to fine-tune by basically applying the “long tail” business model to a highly-efficient (consumer-friendly) “click service” for users. When asked whether it is worthwhile to sell content at such a small price, U.K.-based Andy Taylor, Digital Media director at All3Media was blunt: “It has to be, otherwise [we] wouldn’t do it.” As Lionsgate’s Los Angelesbased managing director, International Television Peter Iacono put it, digital pennies “have added up to become dollars” already. According to Iacono, “digital revenues are quite substantial” and seem to make for a nice business. However, Los Angeles-based principal director of Toronto-based The Fremantle Corp. Irv Holender offered a bit more reserved assessment. He stated that, “Micro-payments constitute a small but growing market,” as The Fremantle Corp. is “increasing [its] broader parts of the catalogue into digital delivery.” These comments indicate that digital revenues frommicro-payments are gaining ground and could become a significant part of business, even if not the main part. And it is definitely the best way to monetize content that is difficult to sell to international TV outlets (e.g., comedies) or that is outside of the popular cycle (e.g., prime-time soaps). Older archives are also perfect candidates formicro-payments: Content that otherwise would still be collecting dust instead of pennies. Trillions of pennies. In that regard, researchers in England have established that, for such content services, consumers are willing to shell-out anything from 10 cents to $3.25. Micro-payments for digital content is estimated to have reached worldwide $11.5 billion in 2009. No one was quite sure where micropayments originated, but both Taylor and Iacono pointed to iTunes as an obvious example of their successful use. In fact, as Iacono remarked, “Micro-payments have been in use for quite some time, but the genesis of iTunes has transformed” the industry and the concept of using micro-payments. Although there was uncertainty as to the origins, all agreed that there are, as Iacono put it, “many ways to generate micro-payments.” Taylor was more specific, citing two ways in particular. One is “charging for a TV program to watch it on demand” and the other is “using your program brand to launch a game to play. For example, launching an iPhone game for Cash Cab and charging for services that use your program brand to create a range of services that people will pay for.” Thus, some companies are generating micro-payments by charging customers both to watch content online, as well as to play games associated with popular programs. Therefore, it seems that micropayments are about finding content that people will pay to watch or use. Taylor noted that many people are paying very small amounts of money, pennies, to play social media games such as Farmville, and even gambling and gaming sites in the U.K. However, he cautioned that “if it’s a subscription service, (i.e. people watching TV), [the amount people will pay for media] needs to be substantial.” Since companies have other revenues to measure, revenues generated by micro-payments must be substantial in order to be worthwhile. For Taylor, “each [digital] penny has to turn into dollars for us to keep the system, and as the audience moves we have to make sure we capture as much value for each [user] as we can.” According to Iacono, the cost of transaction differs depending on the country, but the lowest price they charge in major territories is equivalent to U.S.$1.99. “As the content creator, we keep the lion’s share of that transaction. It’s not so much the transaction, it’s our share in the transaction,” Iacono said. Holender noted that micro-payments are a “business model that’s going to work, because there’s a collector out there who wants to own all of the episodes of a program.” Likewise, Taylor found that there is “evidence that people will pay to watch a premiere episode” of a program. He elaborated: “People will pay to see things that are incredibly exclusive.” Holender underscored the fact that there must be “a lot of content to make it work… Unless you have a lot of titles, you can’t compete.” Iacono agreed and was enthusiastic that there is a wide variety of content that can be purchased using micro-payments: “The great thing about micro-payments is that so many types of content work.” However, if people are willing to purchase all types of content, it is important, as Taylor stressed, that a company “create the same value when people watch online as it does for people to watch on TV,” to ensure that the cost of the transaction is practical, and that companies are not giving away valuable content for next to nothing. What’s more, both Taylor and Iacono emphasized that for people to actually make purchases, the payment process for the consumer must be a “frictionless payment system.” Iacono supported the idea of a “One click, frictionless” process for purchasing content online. Since a means of payment is on file, micro-payments can be ideal for the consumer, according to Iacono. Taylor pointed out that over time, “there could be a move away from physical product toward people viewing online through iTunes or their TV, once they become connected to the Internet. One would imagine that over time physical product will decline and online viewing will grow. So, in the industry, we need to make sure we keep the value we would make from selling a DVD” as the populace moves toward watching content online for a fee. This is important because, Taylor cautioned, “you don’t want to give anything away for free.” Therefore, “the value you make online has to be at least the same as it is with the physical product.” Taylor emphasized that, “things will change, and that’s not a bad thing as long as you’re creating a value when people view content online.” Holender agreed that micro-payments are “already changing the distribution game. Since the downfall of DVDs, the DVD people are now asking for those rights, and it’s a very thin line as to whose rights those are. So you have to be very careful how you manage the specific rights.” Iacono also noted that the traditional distribution system is already being “affected [by micro-payments] because the pennies are dollars; they’re meaningful dollars. It’s not our core business, but it is meaningful.” However, he maintained that Lionsgate is finding ways to make business work for traditional broadcast clients, as well as new media clients, and the key to those efforts are windowing rules and holdbacks. Before content is made available on a service such as iTunes, it is available for a short window of time exclusively on the broadcaster’s website, thereby protecting the broadcaster while simultaneously satisfying new media clients. Micro-Payments Are Adding Up To Make Macro Revenues Digital Pennies From Heaven All3Media’s Andy Taylor Lionsgate’s Peter Iacono
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