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Tuesday, May 22, 2007

Dovetail CEO Jason Holloway on Paid Downloads vs. Ad and Subscription Models

I posted earlier this month about Forrester Research's prediction that "the paid video download market is a dead end."

I disagreed then, and I disagreed now. I think people will continue to be willing to pay for long-form content (like movies), and shorter serial content that's a known quantity (like a TV show or high-quality Internet series).

One person who wrote in was Dovetail.TV CEO Jason Holloway, who said:


    Other than ultra-premium content, people are not willing to pay or even go through the process of paying (i.e., if it was 1/100th of a cent, they won’t go through the process of figuring out how to pay it) unless they know the brand. They will watch ads, especially if targeted and/or short.

    They also will pay for subscriptions, since they are paying for the overriding brand (e.g., Dovetail) with the understanding that there is plenty to watch and their margin cost will be zero, plus no ads.

    I think that history is littered with companies that try the [pay-per-view model] without premium doesn’t work for consumers.

I asked Holloway to clarify a little, telling him I didn't think services like iTunes, Wal-Marts download site, or Amazon Unbox were going to go away; media companies want them to succeed too badly. Holloway wrote:

    I agree with you. I don’t think [those kind of services are] going anywhere.

    Here’s the way I see it. For simplicity there are two segments: high end (stuff that people readily recognize on its own merit) and the rest. For the rest, my theory applies. People won’t pay to experiment, so you have to have ads or subscription (once the platform ITSELF is a brand worth recognizing, people will pay for the platform, even if they won’t pay for each piece of content). People wanting content free or [as] part of a subscription would apply to the high end stuff too, except that the high end stuff (“Darn, I missed Entourage last night”) commands more value and people aren’t experimenting with buying it, so consumers are willing to pay for it. Given that, why should the owners settle for less revenue from their content? They don’t need to settle (because people will pay $1.99 or $.99 or whatever for each piece), so they will command PPV revenue model.

    I’m sure that the high end stuff would be happy with free access if the revenue per viewing/download was high enough, but you can’t show $.99 worth of ads in a TV show – just can’t do it, so they will demand PPV levels of revenue and they will get it.

    Here’s how I think that it will shake out, based on the three types of revenue for say an episode of a TV show. Each piece of content has some value. You can show ads, which generates a few cents per showing (but it is free, so you get more viewers), or you can be part of a subscription package which generates, say, $.10 per viewing (again it’s free, so you get more views, but you have to share revenue with others), or you can price the content at whatever you want, which might be $.49 or $.99 or $1.99 or whatever (BUT you have to convince people to pay before they watch --- tough without a brand). So that piece of content will have to figure out what it is worth. Somewhere in perhaps the $.10 to $.25 range (per view), the owner is going to be willing to lose viewers in exchange for PPV revenue levels.

    Thus, I think the future holds all three…but if you aren’t high end, then you have to work with ads and subscriptions.

That's a lot of writing from someone who doesn't get paid by the word. But in the end, I agree with Holloway: three kinds of models will endure:

> A la carte paid downloads (eg, iTunes)
> Monthly subscription (eg, Vongo)
> Ad-supported (eg, Revver, and now, YouTube)

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